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EUR/GBP Forecast: Brexit Starts, Pound Could Continue to Calm in April

  • Euro British Pound Exchange Rate Fluctuates around 0.85 – Sterling volatility cools
  • Brexit Finally Formally Begins – The Pound fluctuates widely in reaction
  • German Inflation Disappoints – Euro weakens on Thursday
  • UK Growth Data Disappointing – Sterling slips from highs
  • Forecast: PMIs Due Next Week – How did UK and Eurozone economies perform in March?

Euro British Pound Ends Week Near March Lows

The Euro’s recovery attempts lacked the momentum to improve on Friday and as a result the Euro British Pound exchange rate looked to end the week trending in the region of 0.85 – its worst levels since the beginning of March.

This means EUR GBP begun and ended March at around the same value, though this time the pair is on a downward trajectory and could continue to weaken at the beginning of April.

With the 2017 French Presidential election taking place at the end of April and beginning of May, the Euro is likely to see significant political jitters in the coming month.

French election opinion polls are more likely to cause Euro volatility as analysts perceive a possible win for anti-EU candidate Marine Le Pen to be a significant threat to the Euro.

[Previously updated 12:56 BST 31/03/2017]

The Euro British Pound exchange rate looked to recover slightly from weekly lows on Friday as the pair hit psychological support levels. However, poor Eurozone data left the pair relatively limp in the region of 0.85.

EUR GBP trended just above its worst levels since the beginning of March as Britain’s Q4 Gross Domestic Product (GDP) results were worse than expected. Growth unexpectedly slowed from 2% to 1.9% year-on-year and quarterly Q3 growth was revised down to 0.5%.

The Euro failed to capitalise due to disappointing Eurozone inflation projections for March. With inflation on track to slow from 2% to 1.5% year-on-year, this was perceived to take notable pressure off the European Central Bank (ECB).

[Previously updated 16:45 BST 30/03/2017]

Euro British Pound Exchange Rate Nears March Lows

Despite the activation of Article 50 taking place just yesterday, Sterling has strengthened towards the end of the week.

Article 50’s activation removed a layer of uncertainty around Pound trade and the first statements from EU leaders following its activation improved market hopes that UK-EU separation proceedings would be amicable.

As Eurozone data came in well below expectations on Thursday, the Euro British Pound exchange rate was easily pushed down. EUR GBP trended in the region of 0.85 for the first time since the first week of March.

Germany’s preliminary March Consumer Price Index (CPI) results dropped from 0.6% to 0.2% month-on-month, and from 2.2% to 1.6% year-on-year. This decreased the pressure on the European Central Bank (ECB) to tighten monetary policy which was highly disappointing to Euro traders.

[Previously updated 12:44 BST 30/03/2017]

The Euro British Pound exchange rate fell to a new weekly low on Thursday morning, as Brexit jitters cooled following Wednesday’s Article 50 activation and the latest Eurozone confidence stats came in below expectations.

Eurozone business confidence was predicted to improve from 0.82 to 0.9 in March, but remained at 0.82. Services sentiment also disappointed, being expected to improve to 14 but falling to 12.7, while economic sentiment slipped from 108 to 107.9.

However, the Euro could be boosted in the afternoon if Germany’s anticipated March inflation figures impress. If not, a firmer Sterling could capitalise on Euro weakness and push EUR GBP down to near its worst March levels.

[Published 06:00 BST 30/03/2017]

The Euro British Pound exchange rate saw wide fluctuations on Wednesday as global forex markets reacted to news that the UK government had activated Article 50 and begun the formal Brexit process by notifying European Council leader Donald Tusk.

EUR GBP began the week trending at the level of 0.86. The pair briefly surged to a high of 0.87 on Wednesday morning as investors sold the Pound, but Sterling fluctuations worsened and the pair spent most of the day trending widely in the region of 0.86.

Euro (EUR) Slips on Political Uncertainty

With the Brexit process finally beginning on Wednesday, the Pound wasn’t the only currency experiencing turbulence from political shifts.

The Brexit process is set to affect the Eurozone too, as EU member states lose access to British services and travel benefits.

This week has also seen the reality of the Brexit process dawning on markets once again, which has brought the Eurozone’s own political jitters back to the forefront of Euro trade.

April is just around the corner which means we’re entering the final months of the 2017 French Presidential election campaign. Anti-EU candidate Marine Le Pen – who wishes to withdraw France from the Eurozone – remains one of the top contenders.

While analysts predict Le Pen will be defeated by pro-EU centrist Emmanuel Macron in the second round as Le Pen’s opponents converge on him, the surprise wins of the Brexit and Trump votes in 2016 make a Le Pen victory seem like a real possibility.

This week’s Eurozone data has been generally optimistic but has not offered the shared currency any notable support.

French consumer confidence met expectations of 100 in March, while Italian business and consumer confidence prints were better than expected that month.

Pound (GBP) Fluctuates Widely as Brexit Begins

Sterling movement has been highly volatile this week and Wednesday was its most volatile session yet, as some investors sold the currency on profit-taking while others bought it up.

The British currency initially plunged on Wednesday morning as markets reacted to news that the Article 50 letter had been signed and was on its way to European Council President Donald Tusk.

However, Sterling briefly rocketed higher when Article 50 was officially activated at around noon, before falling back from its highs again.

The Pound’s fluctuations throughout the day reflected the split view of analysts on what the Pound may do in reaction to Article 50’s activation.

Some analysts argued the Brexit had yet to be fully priced into the Pound, which was reflected when Sterling dropped from its highs. Others speculated that activating Article 50 would remove a layer of uncertainty from Britain’s outlook which left some GBP traders relieved.

Many traders are also relieved by expectations that Britain will have something of a quiet period now, as full negotiations are not expected to begin until May or June 2017.

Euro British Pound Forecast: What’s Next in Brexit Proceedings?

Now that Article 50 has been activated, markets will begin to move depending on what is expected to follow while speculation of the next steps flares up.

It is generally accepted among analysts that the next major step – the beginning of formal negotiations between UK and EU negotiating teams – will not take place for a couple of months.

Preliminary talks with EU officials are likely already underway, but once preparation is done negotiation will last from around May or June 2017 to towards the end of 2018.

Analysts generally agree that the early days of negotiations could have significant effects on the long-term outlook for Brexit too. Paul Drechsler, CBI President, stated;

‘The first six months are crucial as the UK heads into these challenging and unprecedented negotiations. Securing some early wins is therefore vital to set us on the right path. …

Businesses will welcome the upfront commitment to an implementation period to rule out cliff-edges for firms on both sides of the Channel – though more detail will be needed. Meanwhile, we must work constructively to design a means to maintain some influence over regulations affecting UK businesses in our biggest market.’

Most analysts predict the rights of EU citizens living in Britain and British citizens living in the EU will be protected first, which would boost market confidence and GBP as concerns fade that EU workers could be deported in a ‘cliff-edge’ scenario.

As for Euro British Pound movement for the rest of this week, key German inflation data could influence the Euro’s direction on Thursday, while British growth stats on Friday could offer the Pound some firm support after this week’s previously volatile movement.