- EUR/GBP exchange rate gained as Pound optimism waned ahead of EU referendum result – Confidence weakened despite opinion polls pointing towards ‘Remain’ lead
- Decreased risk appetite boosted Euro – EUR/GBP exchange rate recovered ground after polls opened
- Disappointing Eurozone PMIs failed to weigh on single currency – Growth in currency union weakened in June
- EUR/GBP exchange rate volatility forecast to continue – Vote to leave saw sharp fall in Sterling
EUR/GBP Exchange Rate Gains Muted by BoE Commentary, PM Resigns
As markets have begun to adjust to the unexpected outcome of the EU referendum the Euro saw some of its earlier gains against the Pound lost. With the initial turbulence starting to recede and the Bank of England (BoE) reiterating its preparedness to act the EUR/GBP exchange rate fell back to 0.8077, although pairing volatility is expected to remain high ahead of the weekend.
However, news that Prime Minister David Cameron has resigned is likely to cause further fluctuations.
The PM announced his resignation at 8:00 am and the world is already speculating on whether Boris Johnson (fierce supporter of the Leave campaign) will take the post in light of Cameron’s decision.
Commentary from Scottish political figures has also made it clear that Scotland intends to push for another referendum to extricate itself from the rest of the United Kingdom. Such a move would only add to the uncertainty already plaguing markets today.
While the Euro Pound exchange rate has come away from the highs recorded in the immediate aftermath of the ‘Leave’ victory being announced, the pairing remains up 3.3%.
(Previously updated at 7:55 on 24/06/2016)
Euro Pound Exchange Rate Leaps on EU Referendum Result
A surprise victory for the ‘Leave’ campaign saw the Euro Pound exchange rate climb on Friday. Although EUR/GBP gains were a little limited as the US Dollar surged on the back of significant risk aversion, the pairing still advanced to a high of 0.8315.
The great European revolt is only just getting started https://t.co/CelWY7FHGf
— Telegraph News (@TelegraphNews) June 24, 2016
The Euro US Dollar exchange rate plummeted 2.2% to 1.1076 while EUR/JPY careened -5.0%.
(Previously updated 23:30 24/06/2016)
EUR/GBP Exchange Rate Weakens on Bets the UK Won’t Brexit
As soon as the polls closed at 22:00 GMT the Pound spiked against its peers, causing the EUR/GBP exchange rate to weaken.
With UKIP Leader Nigel Farage conceding that the ‘Remain’ campaign may have pipped ‘Leave’, the Euro Pound exchange rate weakened to 0.7609.
Uncertainty over the outcome of the EU referendum saw the Euro to Pound Sterling EUR/GBP exchange rate trending higher on Thursday, with volatility likely once the final results begin to come through tonight.
Heighted Odds of ECB Easing Weighed on EUR/GBP Exchange Rate
Investors were surprised to find that the finalised Eurozone Consumer Confidence Index for June had weakened from -7 to -7.3. This suggested that optimism has been decidedly lacking within the currency union, which could in itself be a symptom of contagious Brexit-based fear. Coming on the back of a fresh pledge from European Central Bank (ECB) President Mario Draghi to do whatever it takes to boost growth in the Eurozone this naturally saw the Euro (EUR) weaken further.
Confidence in the Pound (GBP), on the other hand, had remained bullish on Wednesday in spite of the proximity of the EU referendum result. Markets continued to assess the odds of a ‘Remain’ campaign victory as more likely, even though the opinion polls still showed a fairly narrow gap between the two camps. Some of this uptrend was muted as the opening of the polls approached, however, allowing the Euro to Pound Sterling (EUR/GBP) exchange rate to retake some ground.
Euro (EUR) Strengthened by Resurgent Brexit Uncertainty
Market sentiment turned more cautious on Thursday morning, with the casting of the first votes in this critical EU referendum causing investors to take greater pause. Although final opinion polls from IPSOS MORI and Populus both suggested that momentum is behind the ‘Remain’ vote at this juncture this was not enough to encourage particular demand for Sterling. With the result still considered too close to call there was little reason for investors to buy into the Pound, particularly given its strong gains since the start of the week.
This increased atmosphere of risk aversion helped to bolster the Euro, minimising the impact of the day’s raft of Eurozone Manufacturing, Services and Composite PMIs. Growth across much of the currency union was shown to have slowed in June, with the French economy’s slip back into contraction territory of particular concern. Even so, markets were inclined to overlook the more negative implications of the data as the EUR/GBP exchange rate was shored up by persistent weakness in the Pound.
EUR/GBP Exchange Rate Forecast: Referendum Results to Prompt Pound Volatility
Although the German IFO Business Sentiment Survey will be released tomorrow morning this is unlikely to be of particular impact, with market focus expected to remain squarely on the results of the EU referendum. A Brexit victory is predicted to trigger a sharp decline in the Pound, but would also have negative consequences for the Euro as researchers at HSBC noted:
‘Eurozone growth around 0.2pp lower in 2016 and 2017, but political contagion could be significantly more damaging. The ECB could front-load QE purchases to periphery countries if spreads widened or could even start OMTs on request.’
If the UK votes to remain within the EU, on the other hand, the EUR/GBP currency pair is likely to return to a downtrend ahead of the weekend. The extent of any resultant Pound rebound could be limited, however, due to the fact that markets have effectively priced much of the impact of a ‘Remain’ victory into the currency already. Whatever the outcome of the EU referendum Friday is likely to be a particularly volatile day of trading for the EUR/GBP exchange rate.