- Greek bailout sage continued to provoke Euro volatility – Market relief at latest agreement limited
- Pound Sterling shored up by Tuesday’s ‘Brexit’ poll, Wednesday’s IFS report – Increasing support for ‘Remain’ campaign encouraged optimism
- ECB speakers could weaken EUR/GBP exchange rate – Dovish commentary forecast to soften single currency
- UPDATE: UK GDP Falls Short – Pound Sterling exchange rates decline
Euro Gains on Pound Today Following UK GDP Report
The Euro to Pound Sterling (EUR/GBP) exchange rate was able to recover some of its recent losses on Thursday as the UK’s latest GDP report failed to meet the annual forecast of 2.1%.
With the UK economy actually expanding at a year-on-year rate of 2.0% in the first quarter of 2016, the Pound slid against several of its main currency counterparts.
The EUR/GBP exchange rate hit a high of 0.7614 and the Pound also softened against the Australian Dollar and New Zealand Dollar.
Tomorrow’s German retail sales report could give the Euro another lift if it shows an increase in consumer spending.
(Previously updated 09:05 26/05/2016)
Oil Price Rally Weighed on Safe-Haven Demand and Euro Exchange Rate
The outlook of the Euro (EUR) remained mixed on Thursday morning, with safe-haven demand limited thanks to oil prices breaking back above $50 overnight. Investors continued to favour the Pound (GBP), although some of the strength of its earlier rally began to diminish. As a result the Euro to Pound Sterling (EUR/GBP) exchange rate remained on a narrow uptrend in the region of 1.3176.
(Previously updated at 17:04 on 25/05/2016)
Euro (EUR) Failed to Make Gains after Poor US Data
In spite of weaker US data the Euro (EUR) remained on a weaker footing against rivals towards the close of Wednesday’s European session. With referendum optimism still heightened this saw the Euro to Pound Sterling (EUR/GBP) exchange rate trending lower around 0.75.94.
(Previously updated at 14:39 on 25/05/2016)
Greek Bailout Worries and Pound (GBP) Rally Weighed on Euro (EUR) Demand
The Euro to Pound Sterling (EUR/GBP) exchange rate extended declines on Wednesday as the Pound’s bullish run continued.
Demands from the International Monetary Fund (IMF) for Greece to receive ‘upfront and unconditional’ debt relief from creditors raised doubts over the outcome of the latest Eurogroup meeting on Tuesday. As there had been significant resistance to debt relief measures in the past, this fresh interjection saw the Euro (EUR) weaken across the board, with investors worried over the possibility of the Hellenic nation not receiving its next tranche of bailout funds imminently.
Confidence in the single currency was also softened by disappointing ZEW Economic Sentiment Surveys, which suggested that confidence in both Germany and the wider Eurozone had dipped substantially in May. This counteracted the impact of the second estimate of Germany’s first quarter GDP, with markets equally doubtful over the sustainability of the robust growth of the Eurozone’s powerhouse economy.
On the other hand, Pound Sterling (GBP) rallied strongly against rivals in the wake of the latest referendum opinion poll. As the ‘Remain’ camp were shown to be pulling further ahead of their ‘Leave’ rivals this led to a resurgence in investor optimism, which was later reinforced by comments from Bank of England (BoE) Governor Mark Carney. As Carney reiterated his earlier warning that a vote to leave the EU could negatively impact the UK economy, the Euro to Pound Sterling (EUR/GBP) exchange rate slumped to a fresh four-month low of 0.7613.
Relief over Greek Agreement Failed to Bolster Euro to Pound Sterling Exchange Rate
Markets were generally reassured at the start of Wednesday’s trading session thanks to the unlocking of the next package of Greek bailout funds. Although all creditors were said to have agreed that Greece’s current level of debt is unsustainable, this went in hand with a climb-down from the IMF, as any opportunity for substantial progress on debt relief was essentially kicked down the road. As a result, the initial optimism of investors began to wear a little thinner later in the morning, leaving the EUR/GBP exchange rate on a renewed downtrend.
While there were no fresh ecostats from the UK, this did not prevent the Pound from maintaining its recent upward momentum. Speculation over the chances of a ‘Brexit’ remained the key driver of Sterling sentiment, with the ‘Remain’ camp emboldened by a new assessment from the Institute of Fiscal Studies (IFS). The think tank indicated that the country could potentially face an additional two years of austerity measures in the event of a vote to leave the EU; a prospect that investors were inclined to believe would encourage voters to choose to stay.
EUR/GBP Exchange Rate Forecast: ECB Commentary May Increase Euro Bearishness
On Thursday a number of European Central Bank (ECB) policymakers are due to speak, which could cause significant volatility for the single currency. While recent indications have been that the ECB is in ‘wait and see’ mode with regards to monetary policy, the tone of comments could still prove dovish, as researchers from HSBC noted:
‘The ECB’s head Mario Draghi has emphasised the need for patience with inflation but the Council will likely be irked by the level of disbelief implied by market measures of medium-term inflation expectations. For that reason we think the ECB will want to reinforce its commitment to do “whatever it takes” and remain on the front foot. At the same time, it doesn’t want to end up with the market expecting a large package of new measures at every meeting.’
There should be no particular surprise from the second revision of the UK’s first quarter GDP report, meanwhile, with expectations pointing towards a confirmation that quarterly growth slowed to 0.4% at the start of the year. This reminder of the slowdown pressures facing the domestic economy could take some of the wind out of the Pound’s sails, particularly if markets see any increase in ‘Brexit’ uncertainty.
Current EUR, GBP Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was slumped around 0.7608, while the Pound Sterling to Euro (GBP/EUR) pairing was making gains in the region of 1.3144.