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GBP EUR Exchange Rate Advances Limited despite Brexit Optimism

  • GBP EUR Exchange Rate Trends Above 1.12 – Pair falls from week’s best of 1.13
  • Euro Supported by Strong Eurozone Data – While UK data fails to boost Pound
  • GBP Forecast: Brexit Negotiations in Focus Again – As well as consumer confidence
  • EUR Forecast: German Inflation Data Next Week – And German confidence stats

The GBP EUR exchange rate trended within a relatively narrow range on Friday. While the pair looked to sustain some gains this week, market concern about the slow UK growth outlook, as well as a strong Eurozone growth outlook, have limited Pound to Euro gains.

GBP EUR began the week trending at the level of 1.1205. While GBP EUR climbed to a high of 1.1304 on Tuesday, the pair tumbled in the second half of the week and trended close to the level of 1.1220 again on Friday morning.

Pound (GBP) Sturdies on Market Hopes for Brexit Progress

Despite some recently weak UK ecostats, investors are hesitant to keep selling the Pound amid hopes that UK-EU Brexit negotiations will finally see significant progress over the next month or so.

Earlier in the week, the UK government indicated it was prepared to offer more money towards the UK-EU ‘divorce bill’. The bill has been a major sticking point in negotiations that have kept talks in a perceived ‘deadlock’ for months now.

With the UK government making greater strides to advance talks, markets speculate that the first phase of negotiations could finally conclude in early 2018 and that trade talks can begin.

Investors have been hoping that the UK and EU will agree to a post-Brexit trade deal that will minimise the damage the Brexit process could cause to businesses, both in the UK and the EU.

Still, while multiple officials are taking optimistic stances, until actual progress is perceived the Pound’s potential for gains is limited. According to Thu Lan Nguyen from Commerzbank;

‘EU Juncker’s comments today was taken as a sign that negotiations with the EU were progressing to the next stage but markets are not ready to take big bets yet as the asymmetric bets are large,’

However, while Pound traders are becoming slightly more optimistic about the Brexit process, concerns about the UK economic outlook continue to weigh.

The past week also saw UK Chancellor Philip Hammond present the Autumn Budget, which saw the Office for Budget Responsibility (OBR) significantly cutting its 2017 UK growth forecast from 2% to just 1.5%.

Recent UK ecostats haven’t impressed either. Thursday’s second Q3 UK Gross Domestic Product (GDP) projections beat expectations quarter on quarter with a figure of 0.4%, but the yearly print came in at just 1.5% as expected.

On top of this, UK business investment is projected to have done worse in Q3 than expected. Quarterly business investment is now expected to reach just 0.2%, with yearly investment projected to plunge from 2.5% to just 1.3%, below the forecast 1.4%.

Euro (EUR) Supported by Strong Economic Outlook

Comparatively, investors expect the Eurozone’s economy to go from strength to strength in the near to mid-term.

While German political uncertainty worsened in the past week, investors quickly brushed over the uncertainty and focused on the Eurozone’s strengthening economic outlook, which continues to surpass even optimistic expectations.

Wednesday’s Eurozone consumer confidence projection for November was a pleasant surprise, coming in at a positive figure of 0.1 rather than the expected -0.8. This was the first positive result for the print since 2001.

Thursday followed with a strong round of Eurozone PMI projections for November from Markit.

Markit’s German manufacturing PMI was forecast to slip to 60.4, but instead jumped to an impressive 62.5. All three of France’s PMI prints beat expectations.

As a result of the strong data across the bloc, the Eurozone’s PMIs came in at 60 for manufacturing, 56.2 for services and 57.5 in the overall composite print.

With investors expecting the Eurozone economy to see strong performance until the end of 2017 and start 2018 off strong, the Euro has seen firm support and investors have been hesitant to sell the shared currency much.

GBP EUR Exchange Rate Forecast: Brexit Negotiations in Focus

Amid a lack of highly influential UK ecostats in the coming week, Pound traders are likely to refocus on UK political news and Brexit developments.

As EU negotiators recently imposed a December deadline on the UK government to offer concessions, markets are hopeful that the government’s higher offer for the UK-EU ‘divorce bill’ will be enough to help negotiations move along.

With December drawing nearer, Pound investment will likely be increasingly focused on Brexit negotiation news towards the end of the year.

Any signs that the first phase of talks could conclude in the coming months would lead to stronger demand for the Pound.

The Euro, on the other hand, is likely to react to key German data due in the coming week.

German consumer confidence stats will come in on Monday, followed by anticipated inflation, retail and employment data from the region on Wednesday and Thursday.

Developments in German politics could also influence the Euro, particularly if they cause relief – or concern – for GBP EUR exchange rate traders.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1220. The Euro to Pound exchange rate traded at around 0.8912.