Euro to Pound Exchange Rate Advances despite Market Uncertainty over Eurozone Politics
Despite the imminence of Italy’s 2018 general election, Brexit concerns remained the focus of the Euro to Pound (EUR/GBP) exchange rate in recent sessions and made it easier for the Euro (EUR) to sustain major gains against the Pound (GBP).
Brexit concerns have dominated Sterling movement this week. It is the primary reason that EUR/GBP has advanced by around one pence, from the week’s opening levels of 0.8801 to where it trended on Friday morning – near a 2018 high of 0.8921.
It was the best level for EUR/GBP since November 2017, indicating that the Pound had shed most of the gains it had gotten on ‘soft Brexit’ hopes since December.
It also indicated that Euro investors were not hugely concerned ahead of the weekend’s Eurozone political events.
Sunday the 4th of March will see Italy go to the polls for its 2018 general election. Previously there had been widespread concerns that an anti-EU populist party could perform well enough in the election to make the chances of an Italy EU exit more likely.
While anti-EU rhetoric in Italy has recently cooled, there is still anxiety about the possibility that the topic of an Italian EU exit could be revived at some point in the future if a populist party performs well.
The results of a poll to Germany’s SPD Party, regarding the possibility of a ‘grand coalition’ between the CDU and SPD, will also be published on the 4th of March.
Pound (GBP) Exchange Rates Weak as Investors Anticipate Brexit Speech
Following days of Brexit concerns dragging the Pound lower against major rivals like the Euro, Friday saw Sterling limp near its lows as investors anticipated a key Brexit speech from UK Prime Minister Theresa May.
Markets are hoping for May to clarify the UK government’s position on Brexit and hint that the government is aiming for a ‘softer’ Brexit.
However, there are widespread concerns that May will be pressured enough by ‘hard Brexit’ supporters in the Conservative Party to avoid hinting at ‘soft Brexit’, and leave the government’s position highly uncertain.
Throughout the week, Sterling performed poorly due to the latest disagreements between the UK and EU on the Irish border issue.
EU chief negotiator Michel Barnier also concerned Pound traders with his comments that a UK-EU transition period is still not set in stone.
Recent UK data has failed to stave off Brexit concerns. While Thursday’s UK manufacturing PMIs came in at a slightly stronger than expected 55.2 and construction beat forecasts on Friday, ‘hard Brexit’ fears have kept the Pound unappealing.
Euro to Pound (EUR/GBP) Forecast: Brexit News and Eurozone Politics to Influence Monday Movement
It may take broad Euro weakness for EUR/GBP to shed its recent gains next week, as unless UK Prime Minister Theresa May impresses markets on Friday or the Brexit outlook somehow improves over the weekend the Pound is likely to remain under pressure.
Still, while Euro traders remain calm for now, the shared currency’s optimistic outlook could still undermined if Sunday’s Eurozone political news shocks investors.
For example, if a populist party performs strongly in Italy’s 2018 general election it could worsen concerns of a potential Italian exit from the EU.
On top of that, if the German SPD Party poll indicates that too many members are against the idea of a ‘grand coalition’, it could cause fears that Germany may need to hold another election and that German Chancellor Angela Merkel could lose power.
As a result, Monday could see some sharp EUR/GBP movement if the weekend’s political news shocks investors.
Key data will also be published early next week, including services and composite PMIs from Markit for both the UK and Eurozone.
Eurozone retail sales data will be published on Monday too, but in terms of Eurozone data the biggest event for Euro traders will be next Wednesday’s Q4 Eurozone Gross Domestic Product (GDP) projections.