Falling confidence measures for the Eurozone have failed to prevent a small Euro to Pound rise today.
- EUR GBP rate rises to 0.9165 – GBP EUR trades down at 1.0910
- Euro unsettled by falling confidence – German and Eurozone indexes fall below forecasts
- Pound down despite borrowing surplus – First surplus recorded since 2002
- Euro may drop on PMI stats – UK GDP slowdown predicted on Thursday
As well as posting a rise against the Pound today, the Euro is also near the highest exchange rate in the pairing since November 2009.
Falling Eurozone Sentiment Scores Fail to Prevent EUR GBP Advance
The Euro has ticked up against the Pound today, mainly due to a drop in the value of Sterling.
Eurozone news has focused on a pair of economic sentiment scores, put out by research institute ZEW. Both the Eurozone and Germany have reported falling economic sentiment in August, to a lower level than forecast.
Commenting on the meaning of the figures was ZEW President Achim Wambach;
‘The significant decrease of the ZEW economic sentiment indicator reflects the high degree of nervousness over the future path of growth in Germany. Both weaker than expected German exports as well as the widening scandal in the German automobile sector in particular have helped contribute to this situation. Overall, the economic outlook still remains relatively stable at a fairly high level’.
Pound Drops because Borrowing Surplus Reliant on Tax Receipts
The UK posting the first borrowing surplus since 2002 would normally be considered good news, but the Pound has instead failed to rally on the news. In July, a move from a -5.67bn deficit to a 0.76bn surplus was reported, which has failed to inspire Pound traders.
Today’s GBP EUR decline is largely due to the fine detail behind the borrowing figures, which have shown a heavy reliance on tax receipts. Highlighting this problematic point was Pantheon Macroeconomics UK economist Samuel Tombs;
‘Growth in receipts will slow sharply at the end of this fiscal year, because the bumper batch of SA receipts collected in January and February 2017, due to prior tax changes, will not be repeated.
The Office for Budget Responsibility (OBR) also [will] likely revise down its very optimistic forecasts for wage growth in the Autumn Budget, boosting the borrowing forecast in future years. As such, we continue to doubt that the Chancellor will pare back the fiscal consolidation planned for the coming years’.
EUR GBP Forecast: Euro Decline possible on Upcoming PMI Stats
Wednesday will mainly feature Eurozone-related news, with the next major UK data not out until Thursday.
Tomorrow’s Euro movement could start off with a speech from European Central Bank (ECB) President Mario Draghi, who will be giving keynote remarks in Portugal.
Following any key statements from Draghi will be German and Eurozone PMI results for August. On the month, the German composite score is not expected to move, but the Eurozone composite is forecast to decline.
Such a result could devalue the Euro, as it would point to a currency bloc-wide slowdown in economic activity.
Any Euro to Pound losses may prove short-lived this week, if Thursday brings a drop in UK GDP growth as forecast. The Q2 second estimate is for a slowdown in annual GDP, which may be enough to trigger a GBP EUR decline.
Additionally, UK business investment is also tipped to have declined in Q2, which may trigger further Pound to Euro losses.
Current Interbank EUR GBP Exchange Rates
At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.9165 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.0910.