- Euro Pound Exchange Rate Trends Near 0.88 – Pair trends flatly on Friday morning
- Pound Weighed by Domestic Political News – Uncertainty ahead of Brexit negotiations
- EUR Forecast: Major Eurozone Data Ahead – Growth and inflation stats next week
- GBP Forecast: Brexit Developments in Focus – Could negotiations accelerate?
Updated 16:59 GMT 10/11/2017:
Hopes that UK-EU Brexit negotiations could see notable progress as soon as December have boosted demand for the Pound on Friday, and dragged the Euro Pound exchange rate nearer the level of 0.8830.
EUR GBP is now on track to close the week below its opening levels, largely due to Brexit speculation.
On Friday, UK Brexit Secretary David Davis and EU chief negotiator Michel Barnier held a press conference in Brussels, following the latest round of talks.
While it appeared progress was still slow, Barnier indicated that progress was indeed being made.
He told reporters that if UK negotiators wanted to make notable progress in December, the UK government would need to offer concessions within the next two weeks.
This deadline of sorts gave Brexit talks a bit more of a perceived schedule and the lower uncertainty made Sterling more appealing. Now investors are buying the Pound in hopes that Brexit negotiations will see progress before the end of the year.
[Published 10:44 GMT 10/11/2017]
The Euro Pound exchange rate has recovered from the lows seen earlier in the week, but amid a lack of bullishness towards the cautious European Central Bank (ECB) outlook, the shared currency lacks the drive to advance further. Pound traders are awaiting the latest Brexit news.
EUR GBP opened the week at around 0.8880 and tumbled to a low of 0.8794 on Tuesday. Overall though, the pair’s movement in recent sessions has not had much impact on the exchange rate outlook as the pair continued to trend near its opening levels on Friday.
Euro (EUR) Strength Limited by European Central Bank (ECB) Outlook
Demand for the Euro has been limited due to the European Central Bank’s (ECB) cautious mid to long-term outlook in recent sessions.
This has prevented the shared currency from advancing against the Pound this week, despite strong Eurozone data and UK political concerns.
The Eurozone’s September retail sales results, for example, beat expectations on Tuesday, coming in at 0.7% month-on-month and 3.7% year-on-year.
Investors also largely overlooked Friday’s industrial production stats.
French industrial production results came in at 0.6% month-on-month as expected. Italy’s production data was disappointing however, dropping to 2.4% year-on-year and coming in at just -1.3% month-on-month.
Overall though, the European Central Bank is optimistic about Eurozone growth in late-2017 and beyond. The bank raised its 2017 growth forecast from 1.7% to 2.2% in its latest economic report and predicts 2.1% growth in 2018.
However, many ECB officials remain wary of pulling back the quantitative easing (QE) program further. The bank recently announced that it was softening its QE package but would leave it in place until at least September 2018.
This is partially due to the bank’s expectation that Eurozone inflation will not reach the 2% target until late 2019. This has also been the primary reason for recent Euro weakness.
Still, some ECB officials are a bit more hawkish and this has offered the Euro stronger support. On Friday, ECB Governing Council member Ewald Nowotny indicated his belief that the ECB should have signalled that the QE package would end after September 2018. He said;
‘This new purchasing programme is valid until September 2018 and in my view we should then go about bringing it to an end if the economy develops as we currently expect it to,’
Pound (GBP) Investors Hope for Developments on Brexit
Sterling, on the other hand, has seen limited strength due to a lack of supportive domestic data as well as concerns about the strength of the UK Conservative government.
High-profile resignations from scandal in recent weeks have led investors to become concerned that UK Prime Minister Theresa May’s position is weak, and that this could have a negative effect on the success of Brexit negotiations.
Brexit talks are ongoing, with another round set to take place in Brussels today between UK and EU negotiators.
Prime Minister May issued a warning to potential rebels of the Brexit process on Friday, by announcing that the EU Withdrawal Bill would contain a date and time for the moment Britain leaves the EU.
The bill states that the Brexit will formally take place at 23:00 GMT on Friday the 29th of March 2019.
May attempted to reassert her leadership with the move and warned against attempts to cause obstacles towards the Brexit process.
Demand for the Pound was little-affected by Friday’s UK data. September’s trade deficit was lighter than expected while manufacturing and industrial production beat expectations too, but uncertainty about upcoming Brexit talks weighed on Sterling.
Euro Pound Exchange Rate Forecast: Brexit Talks in Focus
The Euro Pound exchange rate could end the week relatively closely to its opening levels if the latest round of Brexit negotiations does not lead to any perceived progress.
Since EU leaders have begun to prepare for the second phase of negotiations, which will allegedly include preliminary trade deal talks, investors are hoping that the first phase will overcome a ‘deadlock’ and accelerate soon.
Signs of progress in Brexit negotiations would likely lead to a surge in demand for the Pound, especially if there are indications that the first phase of talks will be finalised soon.
However, if things appear to remain in a ‘deadlock’, the Pound is likely to remain weak.
Euro trade, on the other hand, is unlikely to see much change until next week when many key ecostats will be published.
Tuesday will be a highly influential session. Q3 growth projections for Germany and the Eurozone will be published, as will October’s final German inflation data.
Britain’s own October inflation results will also be published on Tuesday and could influence the Bank of England (BoE) outlook if they surprise.
EUR GBP Interbank Rate
At the time of writing this article, the Euro Pound exchange rate trended in the region of 0.8860. The Pound to Euro exchange rate traded at around 1.1282.