- UK public borrowing lower than predicted in August – GBP EUR exchange rate unmoved as borrowing is £0.3b lower than expected.
- European business outlook positive in the case of ‘hard Brexit’– German and French banks look to gain in wake of ‘Brexit’.
- European Central Bank (ECB) Economic Bulletin – Shows growth in the third quarter.
- ECB President Mario Draghi makes Statement – Warns of overbanking in Europe.
There was little data of note from the Eurozone on Wednesday to initiate any real alterations to the GBP EUR exchange rate, but news from other central banks has caused a slight shake up the currency market.
Pound Sterling Weakens as (GBP) is Unable to shake Brexit Fears
Market confidence in Pound Sterling (GBP) exchange rates continues to wane as Brexit fears loom over the currency, not even the optimistic outlook offered by the Office for National Statics (ONS) is able to reverse sentiment.
Despite pushing for a ‘soft Brexit’ that would leave the UK economy with close ties to the European Union, Chancellor Philip Hammond looks set to crumble under increasing pressure from other conservatives for a ‘hard Brexit’ from the EU.
This ‘hard Brexit’ approach would likely see the UK lose all access to the single market, as key leave Tories seek greater powers to trade internationally, making the Pound an uncertain bet for investors.
Despite this, the Pound managed to bounce back from a five week low against the US Dollar (GBP USD) earlier today on the back of the Federal Reserve’s decision to keep rates at their current levels.
Investors will now be looking to Bank of England Chief Mark Carney’s speech later today for any indication that the BoE will take continue with its current dovish approach to fiscal policy and cut interest rates further before the end of the year.
Pound Euro (GBP EUR) Exchange Rate Holds 1.16 with European Banks Struggling to Maintain Viable Profit Margins
The GBP EUR exchange rate has recovered from its almost 4-year low of 1.15, with the Pound firming to 1.16 thanks to a dip in demand for the Euro.
Speaking at the annual conference of the European Systemic Risk board on Thursday European Central Bank (ECB) President Mario Draghi admitted that his policy to cut interest rates to record lows was an issue, but concluded that Europe has too many banks;
‘Low interest rates tend to squeeze net interest margins owing to downward rigidity in banks’ deposit rates. But overbanking is also a factor in the current low level of bank profitability. Over-capacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins.’
He also told the audience that some banks would need to ‘review their business models to bolster profitability’.
In other news from the Eurozone, consumer confidence saw an improvement from -8.2 from -8.5 while the ECB economic bulletin detailed the ECB’s previous decision to keep interest rates unchanged as it forecasts the economic recovery will continue.
GBP/EUR Exchange Rate Forecast: Pound May See Growth amidst Disappointing Eurozone PMIs
The GBP EUR exchange rate could see some change in anticipation of tomorrow’s Eurozone PMI releases. If, as predicted, the composite PMI comes in slightly lower at 52.8 after a previous showing of 52.9, the Pound may see a recovery.
Conversely should the composite PMI come in with a greater than expected showing then Sterling is likely to drop further against the Euro. Likewise a weak statement from Carney later today could also have a negative impact on the Pound.
Current Exchange Rates
At the time of writing the GBP/EUR exchange rate was trending around 1.1653 and the EUR/GBP exchange rate was trending around 0.8579.