- GBP Exchange Rates Resume Depreciation – Carney warns of rate cuts
- EUR Exchange Rates Edge Higher as Stocks Improve – However, uncertainty continues undermines confidence in the single currency
- Will Domestic Data be More Impactful? – As markets stabilise will trader focus revert to data releases?
- GBP EUR Exchange Rate Forecast to Hold Losses – UK data predicted to remain ineffective given that it relates to a pre-Brexit Britain
On Friday morning the GBP EUR exchange rate declined by around -0.4% after Bank of England (BoE) Governor Mark Carney warned that interest rates are likely to be cut. The British asset is likely to hold losses into the weekend unless there are any positive developments with regards to the UK-EU relationship going forward.
(Previously updated June 30, 2016 @ 09:01)
Since the massive GBP EUR exchange rate depreciation following the UK’s vote to Brexit from the European Union, the Pound has made steady gains thanks to consolidative trade. However, there is potential for GBP to revert to depreciation given the uncertain domestic political and economic outlook.
Meanwhile, the Euro continues to struggle amid concerns that the UK’s exit will cause contagion among other disillusioned member states.
GBP EUR Exchange Rate Climbs after PM David Cameron Stated that the UK ‘Will Not Turn its Back on Europe’
As markets move towards stability now that traders have digested the shock vote which saw the UK opt to leave the European Union, Sterling has made steady gains versus its major peers.
This was partly in response to consolidative trading as investors took advantage of Sterling’s comparatively low trade weighting.
Also boosting the Pound was recently resigned Prime Minister David Cameron’s assertion that the UK will not turn its back on Europe. A BBC reporter wrote;
‘David Cameron says Britain “will not and should not” turn its back on Europe as it leaves the European Union. After discussing the vote to leave with other EU leaders, he said trade and security co-operation would be vital whatever the shape of future links.’
Today’s British data can be considered obsolete given that it refers to a pre-Brexit Britain.
Despite Sterling’s rise over the past few days, most economists expect the Bank of England (BoE) to employ stimulus measures.
‘The UK is in a mess,’ said Dublin-based chief economist Alan McQuaid. ‘It will most likely be left to the central bank to clean up the politicians’ mess, with Mark Carney and his colleagues probably implementing further monetary stimulus before the year is out.’
Meanwhile Jacob Nell, chief UK economist at Morgan Stanley, stated that it will be down to the consumer to prevent a full-blown recession.
‘We’re all expecting investment to go negative, but the question is what happens to the consumer. Pre-referendum, despite the uncertainties, the consumer kept spending. But if we have some kind of disruptive market movement, that can interrupt that consumer psychology and take us into a full-blown referendum recession.’
GBP EUR Exchange Rate Pushed Higher by Dwindling Confidence in the EU’s Longevity
Although the GBP EUR exchange rate slumped massively in the immediate aftermath of the Brexit vote, the single currency has since lost significant ground.
This is likely the result of concerns that the UK’s exit will be a catalyst for other member states to question EU membership, potentially ending the European Union and the Euro.
‘Britain is once again leading the fight for democracy in Europe. Article 50 says it will take two years. But if the Dutch and others follow the British example, the EU might collapse less than two years from now,’ stated Geert Wilders, head of the Dutch Party for Freedom. ‘The European Union is a failed project [that] robs us of our money, our identity, our democracy, our sovereignty.’
The coming weeks will be key for the GBP EUR exchange rate. The longer the UK delays triggering Article 50 of the Lisbon Treaty, the more likely both currencies will struggle amid mounting uncertainty.
European ecostats produced mostly positive results, but once again the data had minimal impact. Data for both the UK and Europe will likely become far more influential over exchange rates once post-Brexit data is published.
In the early stages of Wednesday’s European session the GBP EUR exchange rate was trending in the region of 1.2108.
GBP EUR Exchange Rate Forecast: Uncertain UK Political Landscape to Limit Sterling Gains
As mentioned above, the Pound’s appreciation versus many of its peers is mostly the result of consolidative trade. With that in mind, the Pound is unlikely to return to pre-Brexit levels for a considerable period until more is known about the political and economic future.
However, there is potential that the GBP EUR exchange rate will extend gains in the short-term as investors shy away from the Euro. If the US Dollar returns to strength amid safe-haven demand, the single currency may encounter marked losses.
During Wednesday’s European session, the Pound Sterling to Euro (GBP EUR) exchange rate was trending within the range of 1.2009 to 1.2122.