Euro to Pound Exchange Rate on Track to End Week over Half a Penny Lower
Market speculation that the EU could offer the UK a post-Brexit partnership that would be unprecedented for a non-EU nation caused the Euro to Pound Sterling (EUR/GBP) exchange rate to plunge this week.
After opening the week at the level of 0.9052 and briefly touching on a 2018 high of 0.9095, EUR/GBP tumbled in the middle of the week.
EUR/GBP hit a weekly low of 0.8957 on Thursday, and at the time of writing on Friday trended in the region of 0.8972.
While the Euro (EUR) has rebounded slightly from its weekly lows versus Sterling (GBP), speculation that a stronger UK-EU Brexit deal was still possible and optimism from officials were the biggest influences this week.
Sterling was able to hold most of its weekly gains thanks to some better-than-expected UK data on Friday, as well as some underwhelming Eurozone stats.
Euro (EUR) Exchange Rates Weighed by Eurozone Data, US Dollar (USD) Strength
Uncertainties about whether or not the UK and EU could really reach an unprecedented non-EU partnership after the Brexit process dampened the Pound’s demand, but the Euro struggled to capitalise as other factors weighed on the shared currency.
As US-China trade jitters worsened again, investors once again found the Euro’s final, the US Dollar (USD), appealing as a ‘safe haven’.
With the US Dollar strengthening, the Euro slipped due to the negative correlation between the two currencies.
On top of this, the Eurozone’s Friday data was too mixed to offer the Euro any fresh support.
Germany’s July retail sales results unexpectedly contracted at -0.4% month-on-month, rather than the predicted -0.2%. The previous figure was revised lower from 1.2% to 0.9%.
The Eurozone’s key August inflation projections were disappointing too. August’s yearly inflation projection was expected to remain at 2.1%, but instead slowed to 2.0%. The core inflation figure disappointed too, unexpectedly slowing from 1.1% to 1.0%.
This weighed on any market speculation that the European Central Bank (ECB) could be pressured to hike Eurozone interest rates sooner than expected.
Pound (GBP) Exchange Rate Rally Limited by Brexit Uncertainties
Despite the surge in Pound demand this week and the fresh hopes that a close post-Brexit deal between the UK and EU was possible, many underlying uncertainties remained.
Ultimately, while the Pound did see solid rebound from its worst levels, the Euro to Pound (EUR/GBP) exchange rate is still just about a penny below its worst levels all year.
Compared to pre-August levels, EUR/GBP is still weak. This is because investors are hesitant to buy into Sterling too much with so much clarity still needed on Brexit.
After indicating that the EU was willing to offer the UK a close post-Brexit partnership, EU Chief Negotiator Michel Barnier reminded on Thursday that the EU was still preparing for the possibility of a ‘no deal’ Brexit too.
The Pound saw some extra support on Friday, as GfK’s UK consumer confidence survey for August beat expectations by lightening to -7 rather than remaining at -10 as expected.
Euro to Pound (EUR/GBP) Forecast: Brexit Developments and PMIs in Focus
Brexit developments continue to be the primary driver of Pound movement, and this is likely to continue over the coming weeks.
In fact, analysts, predict the Pound could remain dominated by Brexit uncertainties until there is significantly more clarity in UK-EU Brexit negotiations.
With both UK and EU negotiators speculating that a deal may not be reached by the initially projected deadline of October, Pound strength could be limited by Brexit uncertainties for even longer than previously expected.
So even if next week’s key UK services PMI report surprises investors, Brexit developments could limit the Pound’s movement.
As for the Euro, multiple notable Eurozone ecostats will be published throughout the week that could prove influential.
Markit’s final August manufacturing PMI for the Eurozone will be published on Monday, followed by services and composite figures on Wednesday. This will give investors a more solid idea of how strong the Eurozone economy has been for the past month.
Wednesday’s Eurozone retail sales stats from July, Q2 Eurozone growth projections on Friday, and the strength of the US Dollar (USD) as the Euro’s rival, could also influence the Euro to Pound (EUR/GBP) exchange rate next week.