- Euro Pound Exchange Rate in 0.88 Region – Trending above week’s opening levels
- Eurozone Data Continues to Impress – Eurozone consumer confidence beats expectations
- GBP Update: Brexit Speech Disappoints – Pound weakens on Friday
- Forecast: Eurozone Inflation Ahead – As well as UK Growth Data
Updated 16:57 BST 22/09/2017:
The Euro Pound exchange rate advanced on Friday afternoon, as disappointed investors digested the day’s Brexit speech from UK Prime Minister Theresa May.
EUR GBP looked to sustain gains throughout the week and trended in the region of 0.8845 at the time of writing.
Not much about the speech was surprising or new to markets and May failed to offer much clarity on the UK government’s offers for a UK-EU divorce bill.
Investors were also disappointed by Theresa May’s reassertion that the UK government would rather have ‘no’ post-Brexit UK-EU deal than a bad one.
Earlier in the day, Euro investors were impressed by the day’s preliminary September Eurozone PMIs, which beat expectations in every major print.
[Published 06:00 BST 22/09/2017]
The Euro Pound exchange rate saw more narrow trade on Thursday as investors steadied on the Pound ahead of a highly anticipated Brexit speech from UK Prime Minister Theresa May. The contents and outcome of the speech will influence late-week EUR GBP movement.
EUR GBP began the week trending at 0.8790 and hit a high of 0.8891 on Tuesday. While the pair has since slipped from those highs, it remains above the level of 0.88.
Euro (EUR) Continues to be Supported by Data
While the Eurozone outlook has been largely unchanged by recent data, it has continued a trend of beating expectations, leaving the Euro relatively appealing.
The latest dataset to beat expectations was September’s Eurozone consumer confidence projection, which was expected to remain at -1.5. The figure unexpectedly improved to -1.2 however.
This report has followed other strong Eurozone data from recent sessions, including The Netherlands’ better-than-expected August unemployment rate, as well as strong economic sentiment surveys from ZEW.
Overall though, recent data has not been strong enough to boost bets of further hawkishness from the European Central Bank (ECB).
Markets continue to expect that the ECB will begin to wind down its quantitative easing (QE) scheme in the coming months, but the bank has indicated it will leave other accommodative monetary policies in place.
On Thursday, the ECB noted in its latest economic bulletin that the Eurozone’s economic growth and unemployment rates were encouraging, but that inflation still hasn’t shown any signs of a sustained rising trend.
The bulletin was largely similar to the bank’s latest monetary policy statement, so it had no notable effect on Euro trade.
Pound (GBP) Investors Anticipate Brexit Developments
Sterling trade has cooled after days of volatility, as investors are eagerly anticipating some kind of Brexit development to come from Friday’s upcoming speech from UK Prime Minister Theresa May.
UK Prime Minister May will be holding a Brexit speech in Florence. Reports suggest that the speech will aim to break a deadlock in UK-EU negotiations and potentially even discuss how much the UK government is willing to pay on the Brexit divorce bill.
Anxiety about the upcoming speech has weighed on Sterling strength, with investors adjusting Pound trade in anticipation of any potential developments.
The Pound did push EUR GBP closer to the week’s opening levels thanks to some strong UK data and Bank of England (BoE) speculation in recent sessions however.
Britain’s August retail sales results beat expectations in both yearly and monthly prints, while August’s public sector net borrowing report showed the smallest August budget deficit since 2007.
The solid UK data has boosted market hopes that the Bank of England could tighten UK monetary policy within the coming months.
According to analysts from Rabobank;
‘We are coming around to the view that the BoE may be prepared to hike interest rates once either in November 2017 or February 2018 and then sit back for a while digesting the impact on Sterling and on consumption in particular,
Not only would a policy move consolidate the support provided to the Pound by the Bank’s hawkish rhetoric, but it would protect the central bank’s credibility … following so much hawkish talk.’
While investors are anxious about the upcoming Brexit speech, the Pound outlook has improved overall due to strong UK data and persistent speculation of a more hawkish Bank of England.
Euro Pound Forecast: Brexit Speech in Focus
Friday’s session could be highly influential for Euro Pound exchange rate trade, as Eurozone data will be published and UK Prime Minister Theresa May will deliver her first key Brexit speech since Article 50 was activated earlier in the year.
The day’s Eurozone PMI projections from Markit could influence Euro trade. Analysts expect September’s PMIs to come in relatively close to August’s strong figures.
As always, the most influential prints will be Germany’s manufacturing PMI, as well as the Eurozone’s overall PMIs.
The Netherlands’ final Q2 Gross Domestic Product (GDP) results will also be published.
If the day’s Eurozone data impresses, it would boost hopes that the Eurozone’s recently strong economic growth will continue. However, this is unlikely to have a major impact on Euro trade as the European Central Bank (ECB) already expects strong economic growth from the bloc.
As a result, the biggest movements on Friday are likely to come in reaction to the Brexit speech. If investors are disappointed in the speech, the Euro Pound exchange rate could see some gains before markets close for the week.