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Euro Pound Advances despite Fresh House of Lords Brexit Hopes

The Euro to Pound exchange rate continued to advance throughout Wednesday’s European session as the morning’s UK manufacturing PMI from Markit weighed down harder on the Pound.

Traders will now keep their eyes out for how Britain’s construction and services sectors performed in PMIs due for publication on Thursday and Friday respectively.

EUR GBP was also given a further boost on Wednesday afternoon by the day’s preliminary German Consumer Price Index (CPI) figures from February.

Monthly inflation improved as expected, from -0.6% to 0.6%. It was the year-on-year stat that impressed investors; by beating expectations of a rise from 1.9% to 2.1% and coming in at 2.2%.

[Previously updated 12:47 GMT 01/03/2017]

The Euro to Pound exchange rate continued to edge higher during Wednesday’s European session as the Pound was sold on fresh economic concerns, despite renewed hopes that the UK House of Lords would amend the Brexit bill.

Britain’s February manufacturing PMI from Markit unexpectedly dropped from 55.9 to 54.6 despite being predicted to merely slip to 55.6.

This increased concerns among traders that the sector was seeing the beginning of a prolonged slowdown. Investors were also anxious that other UK sectors, like the key services sector, could have slowed in February.

As a result, Sterling failed to benefit considerably from the morning’s news that the House of Lords seemed likely to fight for the rights of EU nationals living in Britain. This lightened concerns that workers and businesses from the EU would be ejected after Brexit.

[Previously updated 12:36 GMT 28/02/2017]

The Euro Pound exchange rate’s gains slowed slightly on Tuesday as Brexit and Scottish referendum jitters softened.

The day’s Eurozone ecostats, which included French Q4 Gross Domestic Product (GDP) figures and Consumer Price Index (CPI) prints, largely met expectations helping the shared currency to hold its ground.

While analysts noted that a second Scottish independence referendum would not be possible without the greenlight from UK Prime Minister Theresa May, Sterling remained limp during the morning’s European session and failed to recover any of Monday’s losses.

This left EUR GBP comfortably trending above the level of 0.85.

[Published 07:00 GMT 28/02/2017]

The Euro to Pound exchange rate jumped back up to the level of 0.85 during Monday’s European session as Brexit concerns returned after being largely absent last week. GBP investors digested the likely reality of the UK pursuing a hard Brexit.

With March just around the corner and the UK government still intent on activating Article 50 to begin the Brexit process before April, Brexit is sure to dominate headlines once again in the coming month.

Some traders remain optimistic that the UK House of Lords will be able to amend the conditions of the Brexit process. If Lords vote that the government should secure the rights of EU nationals living in the UK, this could increase hopes that EU businesses will not be ejected from Britain.

However, speculation flared up on Monday that when Article 50 is activated and the Brexit process begins, Scotland will announce it is to hold a second Scottish independence referendum.

Scotland previously voted to remain in the UK but also voted fairly conclusively to remain in the EU.

It is believed that the UK’s decision to Brexit has changed the minds of many who voted ‘IN’ in the last Scottish referendum and could lead to a different outcome if the Scottish independence referendum was held again.

However, if Scotland did indeed hold another referendum the Pound would be undermined by concerns that Scotland may leave the British currency.

Ipek Ozkardeskaya, senior market analyst from London Capital Group, stated on Monday;

‘Speculations that Scotland could call for another independence vote hammered the mood in the Pound market at the start of the week. The Pound tanked to $1.2392 at the early hours of the Asian session, as the Times of London reported that Scotland could ask for a second vote of independency as PM Theresa May triggers the Article 50 in March.

Although there is no need for additional panic at this point in time, the week started with Brexit related concerns and the current deterioration in the sentiment could dent the appetite in the Pound and encourage more bears to join the sell-off at the start of the trading week.’

In comparison, demand for the Euro has improved this week due to French election polls published over the weekend.

These polls show independent Presidential candidate Emmanuel Macron enjoying increased support. Polls now indicate that if he were to go against anti-EU candidate Marine Le Pen in the final round of the election, he would win 61% of the vote.

While investors remain concerned that Le Pen could pull a Brexit or Trump shock win in the finale of the French elections in May, Macron’s success in the polls has helped the shared currency recover from its worst levels.

Monday’s European session also saw the publication of the Eurozone’s latest business and consumer confidence prints. Consumer confidence was down -6.2 as predicted, but business confidence for the bloc unexpectedly improved from 0.76 to 0.82, surpassing the projected 0.79.

However, these figures are unlikely to improve the long-term outlook for the Euro to Pound exchange rate.

Brexit jitters remained strong on Monday but the increasing uncertainty of the Eurozone’s future amid elections this year and a lack of underlying inflationary pressures mean Eurozone growth is likely to remain modest.

According to IHS Markit economist Howard Archer, this means the European Central Bank (ECB) is unlikely to edge towards tightening policy any time soon;

‘The ECB will likely point to the January lending data as providing ongoing evidence that its monetary policy is providing valuable support to Eurozone growth and should not be changed any time soon … Additionally, while the ECB is relatively upbeat on Eurozone growth prospects, it is very aware that there are appreciable uncertainties ahead, especially political ones’

The Euro to Pound exchange rate will also be influenced by economic datasets due for publication throughout the week.

Tuesday will see the release of France’s preliminary Q4 Gross Domestic Product (GDP) results which could support the Euro if they impress.

Wednesday’s session will be far more influential however, as Germany’s key February unemployment results will be published as well as Germany’s preliminary February inflation stats. Britain’s manufacturing PMI from Markit will be published too.

Some analysts have suggested that as well as French election concerns and Brexit process jitters, this week’s speech from US President Trump also has strong potential to affect both Euro and Pound exchange rates.