- Euro Pound Exchange Rate Nears 0.90 – Pair hits best levels in a week
- Euro Strong Despite Catalonia Jitters – Pound weak on UK economic anxieties
- EUR Forecast: ECB Meeting Next Week – As well as October’s preliminary PMIs
- GBP Forecast: Brexit Concerns Remain in Focus – Further Pound losses could be ahead
The Euro Pound exchange rate jumped on Thursday as UK economic concerns hit the Pound once again. The Eurozone’s decent economic outlook has helped it to hold its ground, despite concerns about tensions between Spain and Catalonia.
EUR GBP began the week trading at around 0.8897 but has since advanced over half a cent. On Thursday afternoon, the pair trended near the level of 0.8987 and has recovered most of last week’s losses.
Euro (EUR) Holds Despite Spain’s Political Tensions
While uncertainty about political tensions between Spain and Catalonia have weighed on Euro strength in recent sessions, the shared currency was still able to easily advance against a weak Pound yesterday.
Political uncertainty is keeping the Euro from its best levels, as Spain has indicated it will soon activate its ‘nuclear option’ and take direct control over Catalonia, in order to prevent the autonomous region from attempting to declare independence.
If Spain’s government activates ‘Article 155’ of the Spanish constitution, it can take legal control over the autonomous nation. The government has indicated that it plans to do this over the weekend.
Despite the potential for clashes between Spain and the separatists if direct control is taken, investors are hoping that this move is more likely to give markets some short-term certainty.
If there is no chance for Catalonia to declare independence, there is no chance for Spain to lose the region that makes up around 20% of its Gross Domestic Product (GDP).
Analysts also reckon there isn’t much chance of things becoming much worse any time soon. According to John Marley, head of FX strategy at Infinity;
‘The Catalonia thing is priced in now unless it blows up really badly and people seem to be happy going long Euros before the ECB meeting next week’
The latest Eurozone ecostats have had little notable effect on Euro trade, so the currency is currently firming ahead of next week’s key European Central Bank (ECB) policy decision.
Pound (GBP) Dragged Down by Poor UK Retail Results
Market hawkishness that the Bank of England (BoE) is preparing to tighten UK monetary policy within the coming months dropped on Thursday, as the latest key UK data indicated that lower consumer confidence could be having a negative impact on Britain’s economic activity.
Britain’s September retail sales results were forecast to slip from 2.3% to 2.1% year-on-year and from 0.9% to -0.1% month-on-month.
The figures came in even lower in both prints, with a disappointing 1.2% year-on-year and a notable -0.8% contraction month-on-month.
The data indicated that British consumers were buying a lot less. For Britain’s heavily consumer-facing economy, this doesn’t bode well for late-year growth.
Many analysts also believe the poor retail data is likely to weigh on the chances of the Bank of England actually tightening UK monetary policy any time soon.
According to Laith Khalaf from Hargreaves Lansdown, the bank faces a difficult decision;
‘On top of that the Bank could well find its credibility compromised if it fails to follow through on its recent hawkish commentary, and would once again be on the hook for providing ‘forward misguidance’.
The currency markets are clearly paring back bets that the Bank is going to raise rates imminently thanks to these latest figures, though the odds are still very much in favour of a rate hike. The stage is now set for a big decision from the central bank on 2nd November.’
Economic concerns have put additional pressure on Sterling, which was already seeing poor performance in recent sessions due to concerns that UK-EU Brexit negotiations could fall through and lead to a ‘hard Brexit’.
Euro Pound Exchange Rate Forecast: European Central Bank Meeting Next Week
The Euro Pound exchange rate is unlikely to see a notable shift in direction before markets close on Friday evening, unless there are some surprising political developments in the EU or Britain.
For example, if Catalonia attempts to declare independence before Saturday, this could cause political uncertainty to spike which would weaken the Euro.
However, Sterling could see even weaker trade on any fresh indications that Brexit negotiations are leading towards a ‘hard Brexit’. This would likely lead to EUR GBP ending the week even higher.
Friday’s Eurozone data includes German PPI from September, Spain’s August trade balance update and October’s consumer confidence data from The Netherlands.
Over in Britain, September’s public sector net borrowing results will be published.
If there are no notable political developments, EUR GBP could see steadier trade though and hold near its current levels until next week.
Next week will see the publication of key Eurozone PMI and UK growth projections.
The most influential event for Euro Pound exchange rate trade though, will be the European Central Bank’s (ECB) October policy decision, which is expected to see the bank detailing its plans for winding down quantitative easing (QE).