- Euro Pound Exchange Rate Surges – Pound weakened further as BoE Governor Mark Carney takes the stage with BoE Stability report.
- Sterling Falls as BoE Report and Weak Ecostats Hamper Outlook – Market reports point towards UK struggling before Brexit even occurred.
- Euro Enjoys Small Boost as Traders Buy In – Savvy investors took the opportunity to stock up on a cheap Euro.
- Forecast: Euro Pound Pairing Likely to see Movement from UK, EU Ecostats – Pound finally ‘recouples’ with domestic data
The Euro Pound exchange rate experienced fantastic gains yesterday as the Bank of England’s (BoE) financial stability report for July made for particularly grim reading.
It has not been a particularly advantageous week for the Pound. On Monday, the UK Markit construction PMI printed at a disheartening 46 points, down from 51.2 the previous month. This comes as a sign of major ramping down of both the commercial and residential construction sectors in reaction to the massive increase in market and investor uncertainty surrounding the UK’s referendum to leave the EU on the 23rd of June.
The Pound Euro exchange rate currently trades at 1.1730 after falling over 1.5% during yesterday’s session. Sterling is down a whopping 14 cents since the results of the EU referendum were announced on June 24th.
Euro (EUR) Feels Pressure from Looming Italian Bank Crisis
The Euro has not seen any impactful data released so far this week but continues to feel downward pressure from the residual Brexit fallout.
Initially the Euro fared terribly as the news of the UK’s decision to leave the European Union broke, but the currency has been able to recoup some of its losses since. However, the Euro remains plagued by the thought of a Eurosceptic contagion sweeping through greater Europe on the back of the UK’s Brexit as member states with an already growing anti-EU representation see further support.
Also weighing heavily on the Euro is the looming Italian banking crisis. Italian banks have struggled to keep up since the 2008 Great Recession thanks to a host of structural and policy issues and are reaching the point of requiring a bailout, be that publically funded by taxpayers or at least partially funded by creditors. Italian Prime Minister Matteo Renzi is ready to defy EU recommendations that taxpayers money should not be used so hastily to bail out banks if the situation continues to escalate.
The Euro did see a slight appreciation yesterday as traders took advantage of the weaker common currency.
Pound (GBP) Flags under Woeful Construction PMI Print and Foreboding BoE Financial Stability Report
It has been a fairly harrowing week thus far for Sterling.
Still reeling from the death-knell of the EU referendum, the Pound has seen further losses this week as it struggled with a thoroughly disappointing construction PMI and a Bank of England stability report that made for a grim read. As a result the Pound dropped over 2 cents against the Euro over the course of yesterday’s session.
However, this has proven that the Pound may no longer be decoupled from domestic data now that the initial Brexit shock has subsided somewhat.
The Bank of England’s July financial stability report highlighted the massive increase in market and investor uncertainty following the UK’s decision to Brexit and outlined some specific areas which are a cause for concern. The UK’s current account deficit was a focus for Governor Mark Carney as he gave his accompanying speech. The deficit is concerning as it uncovers Britain’s reliance on a constant influx of foreign capital to keep its head above water.
Other areas for concern listed in the report were the severe contractions in the UK’s construction sector as both retail and commercial projects see a massive decline thanks to Brexit uncertainty keeping larger, risker deals off the table. The high levels of UK household debt and notably subdued global and Eurozone growth were also problem areas for the central bank, along with the general fragility of the markets themselves during tumultuous times such as these.
Euro Pound Exchange Rate Looks Towards Late-Week Ecostats for Support
For the UK, industrial and manufacturing production output are set for release tomorrow, both are expected to show a decline and with the Pound’s return to being affected by ecostats, we could expect further declines for the Brexit-battered currency.
The UK trade balance is expected on Friday and is forecast to show us sliding further into the trade deficit which could also be likely to place further downward pressure on the Pound.
The Pound could find some support if the UK’s political landscape starts to look less rocky.
Wednesday sees the release of some fairly impactful data out of Europe. German factory orders are the first to release early in the morning with an expected rise from -0.5% to 0.9%. Also coming out of Germany are the construction and retail PMIs. All three data prints hold sway over the Euro and you could expect to see a fair rally if all three print above-board.
Along with the German data released on Wednesday, a Eurozone retail PMI is also expected, similarly if the data shows a fair increase it would bode well for the common currency.
A German industrial production report set for Thursday is likely to affect the Euro’s movement if the figures smash forecasts, if not then it is unlikely to elicit much movement.
The Euro Pound exchange rate will balance on the EU and UK’s ability to stem the economic uncertainty surrounding the continent and the UK’s expediency in finding a new Tory party leader.