After the High Court ruled that the UK government cannot trigger Article 50 without agreement from parliament the Euro Pound exchange rate weakened sharply, with investors hopeful that this could lead to a softer form of Brexit.
- Eurozone unemployment rate lowered – Euro struggled to capitalise on positive data
- Euro Pound exchange rate dented by Brexit court ruling – Markets encouraged as parliament gained greater say on UK exit from EU
- Solid retail sales forecast to boost single currency – EUR exchange rates expected to benefit from US election jitters
- Did less dovish BoE minutes put a floor under Sterling? – Possibility of interest rate hike may limit GBP weakness
Demand for the Euro may pick up, however, as the results of the US presidential election draw closer, with the single currency set to benefit from a greater mood of market risk aversion.
High Court Brexit Ruling Prompted Sharp Slump for Euro Pound Exchange Rate
While the Eurozone unemployment rate for September was confirmed to have dipped to 10% as forecast this failed to offer any particular encouragement to the Euro (EUR) on Thursday. Increasing worries over the outcome of the US presidential election have boosted demand for the single currency, though, with investors inclined to sell out of the more vulnerable US Dollar (USD).
The Euro Pound (EUR GBP) exchange rate was prompted to slump sharply, however, after the High Court ruling that Article 50 cannot be triggered without a parliamentary vote. This was seen to reduce the risk of the UK suffering a hard Brexit, offering greater incentive for markets to support the weakened Pound (GBP).
Sterling’s bullish run was extended as a result of the Bank of England’s (BoE) policy meeting minutes, which showed an unexpectedly hawkish shift in attitude. Although the possibility of another interest rate cut was acknowledged policymakers indicated that the direction of the next move could be up rather than down. Given the solid nature of recent UK data this naturally saw the EUR GBP exchange rate slide further.
Euro (EUR) Exchange Rates Predicted to Recover Ground on Solid Eurozone Retail Sales
A raft of Eurozone retail data could offer the Euro a rallying point on Monday, with forecasts pointing towards a solid uptick in retail sales in September. This could indicate that consumer confidence within the currency union has remained solid, an encouraging signal considering that much of the growth in the German economy has been consumer driven in recent months. If the impact of the UK’s vote to leave the EU continues to have little tangible impact on the Eurozone economy then the EUR GBP exchange rate could return to a stronger footing.
Even so, the major market focus of the coming week will be the results of the US election. If Donald Trump achieves victory then the Euro could see a sharp spike in demand, as investors would be likely to pile out of the US Dollar in such an event. Although markets have been pricing in a higher probability of a surprise win for the Republican candidate this would nevertheless cause significant market volatility, at least in the short term. As a result the EUR GBP exchange rate could be pushed higher, although a victory for Hillary Clinton is likely to see the single currency slump in response to a ‘Greenback’ rally.
EUR GBP Exchange Rate Gains Forecast to Remain Limited Given Less Dovish BoE Outlook
Some of the shine of the Pound could fade if Tuesday’s UK industrial and manufacturing production figures are found to have weakened in September. Even though the latest raft of PMIs have pointed towards the economy getting off to a strong start in the fourth quarter Sterling could still suffer from any signs of weakness. Any softening in production output would seem to suggest that growth is a little more fragile than markets might hope.
However, the bullish impact of the BoE meeting could limit the weakness of the Pound over coming days, as Derek Halpenny, European Head of GMR at MUFG, noted:
‘We believe that will help create a floor for the Pound when Pound selling is being driven purely by speculation of ‘hard’ Brexit. That trade until now has been viewed as a one-way bet given the belief that the BoE would be indifferent to the inflation overshoot. That is no longer the case which will act to discourage speculative selling at lower levels going forward.’
Current Interbank Exchange Rates
At the time of writing, the Euro Pound (EUR GBP) exchange rate was trending lower at 0.88, while the Pound Euro (GBP EUR) pairing was making gains in the region of 1.12.