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GBP EUR Exchange Rate Firms in Anticipation of Friday’s Brexit Speech

  • GBP EUR Exchange Rate Trends Near 1.13 – Pair struggles to hold above key level
  • UK Retail Sales Beat Expectations – Sterling performance mixed however
  • GBP Forecast: Brexit Speech on Friday – Potential for major Pound movement
  • EUR Forecast: Eurozone PMIs Ahead – As well as Eurozone confidence data

Updated 16:48 BST 21/09/2017:

Towards the end of Thursday’s European session, the GBP EUR exchange rate advanced slightly and trended near the morning’s highs again.

Investors are firming in the Pound ahead of Friday’s Brexit speech, which investors are hoping will offer fresh developments on the process.

Traders are also anticipating Markit’s preliminary September PMIs for the Eurozone.

However, as the European Central Bank (ECB) has recently expressed confidence in the Eurozone’s economic strength, the PMI data may not inspire much Euro movement.

[Previously updated 12:55 BST 21/09/2017]

After advancing overnight, the Pound Euro exchange rate slipped slightly again during Thursday trade.

At the time of writing, the GBP EUR exchange rate trended in the region of 1.1325. The pair has trended above the level of 1.13 since Wednesday evening.

Thursday’s UK data had little effect on Sterling. While the latest UK public sector net borrowing report beat expectations, GBP EUR still slipped from its highs as investors anticipated Friday’s Brexit speech.

[Published 06:00 BST 21/09/2017]

Britain’s August retail sales report led to a brief boost in demand for the GBP EUR exchange rate on Wednesday, but uncertainty about the Bank of England (BoE) outlook as well as jitters about the upcoming Brexit speech have limited Pound strength.

GBP EUR surged from 1.0963 to 1.1377 last week due to surprisingly hawkish Bank of England (BoE) comments. This week has seen the pair dip below 1.13 again.

Pound (GBP) Supported by UK Retail Sales Report

After tumbling on Monday and Tuesday, the Pound saw slightly stronger demand yesterday as investors reacted to a stronger-than-expected UK retail sales report.

UK retail sales were forecast to slow from 1.3% to 1.1% year-on-year and from 0.3% to 0.2% month-on-month.

Not only were the previous figures revised higher to 1.4% and 0.6% respectively, but August’s results were far higher than expected.

The yearly print came in at 2.4% and the monthly figure at 1%. According to the Office for National Statistics (ONS), the boost in sales came largely from non-essential purchases, as food retail sales trended flatly year-on-year while petrol sales fell.

Some analysts perceived the retail sales report as more evidence that Britain’s economy could support an interest rate hike from the Bank of England (BoE) in the foreseeable future.

However, others weren’t quite as hawkish. According to economists from Credit Suisse, Britain’s economy may not be ready to support any BoE action;

‘We think the BoE has misdiagnosed the amount of slack and growth potential in the UK economy.

The hike is unlikely to have a profoundly negative impact on the economy, but there is a risk of a non-linear response to the first rate hike in ten years. A tighter response to an (entirely) externally driven inflation overshoot today runs the risk of a sustained inflation undershoot in the future.’

Some analysts have even suggested that the Bank of England’s recent hawkish tone is simply an attempt to drive up the value of the recently weak Pound, The bank has used hawkish rhetoric without following through with a rate hike in the past.

Euro (EUR) Limits Sterling Gains as Eurozone Data Impresses

Despite market uncertainty about the long-term European Central Bank (ECB) policy outlook, the Euro held against a slightly stronger Pound during Wednesday trade.

This was partially due to the latest Eurozone ecostats, which have been optimistic.

Germany’s August PPI report came in on Wednesday and beat expectations in both prints. The yearly result rose from 2.4% to 2.6% and the monthly figure held at 0.2% rather than slipping to 0.1% as expected.

Investors were also impressed with ZEW’s economic sentiment surveys, which came in on Tuesday. German economic sentiment and current conditions prints both came in higher than expected.

Concerns remain about the Euro’s strength remaining an obstacle for Eurozone inflation and the European Central Bank’s policies.

However, overall the mood in the bloc and the bank is relatively optimistic. According to ECB policymaker Klaas Knot;

‘The appreciation of the Euro should be considered a reflection of the relative strength and stability of the Euro area economy,

(This is) a clear indicator of the factors that underlie the reduced necessity of continued asset purchases … supporting the call for a gradual but decisive rebalancing away from non-standard towards traditional instruments of monetary policy.’

GBP EUR Exchange Rate Forecast: Upcoming Brexit Speech in Focus

Britain’s August public sector net borrowing report will come in on Thursday, followed by the Eurozone’s September consumer confidence projection.

Thursday’s session is unlikely to be highly influential for GBP EUR exchange rate trade though, as investors will be looking ahead to Friday’s key session.

On Friday, UK Prime Minister Theresa May will hold a key speech on Brexit. Markets are speculating that this could be the first major development on the Brexit process in some time.

Markets will be particularly focused on if May’s stance on Brexit has changed at all. If May indicates that Britain is still headed for a ‘hard Brexit’, the Pound could shed some of its recent strength.

Friday will also see the publication of the Eurozone’s September PMI projections, from Markit.

The PMIs are largely expected to come in close to the impressive performance seen in August. If they outperform expectations, the Euro is likely to see stronger demand again which will limit potential GBP EUR exchange rate losses towards the end of the week.