UK public spending data failed to keep the Pound Euro (GBP EUR) exchange rate trending around it’s weekly high of 1.1630 on Friday, leaving the GBP EUR exchange rate forecast to trend lower than expected towards the end of the week.
- GBP EUR Exchange Rate Forecast to make Limited Advance – BoE bets to weigh on Pound rally
- UK Retail Sales Cause Sterling Surge – Spending largely unaffected by Brexit vote thus far
- Eurozone Seems Sturdy after Thursday – ECB minutes cautiously optimistic
- Public Sector Borrowing Fails to Influence GBP – Sterling slips due to Article 50 worries
- Forecast: Eurozone PMIs Next Week – Will August activity continue July’s optimistic trend?
GBP EUR Exchange Rate Forecast to Fall Below 1.15 Again
The Pound plummeted against the Euro on Friday afternoon, losing much of its weekly gains after a report was released claiming that Article 50 would be activated before April 2017.
Article 50, the trigger needed to begin the formal Brexit process, was previously confirmed to not be activated until 2017 at the earliest.
While the report of the ‘April 2017 at the latest’ claim was disregarded by Downing Street officials within hours of its publication, Sterling was unable to recover from its fall.
By the end of the week’s European session, GBP/EUR was trending below the level of 1.1550 and was on track to end the week below its opening levels, despite Sterling’s rally from Tuesday to Thursday.
Article 50 speculation and Bank of England (BoE) easing bets will keep the Pound weighed down next week, and the Euro has potential to advance further if key ecostats impress markets.
The economic calendar for the Eurozone next week includes flash PMIs for the currency bloc’s largest countries, GDP figures for Germany and the IFO sentiment measures.
(Previously updated 13:30 BST 19/08/2016)
The Euro strengthened in the early afternoon despite some concerns that the European Central Bank (ECB) could expand its easing policies in September. Investors mirrored the bank’s July minutes, remaining cautiously optimistic on the currency and the Eurozone ahead of next week’s key preliminary August PMIs.
GBP EUR Exchange Rate Forecast to End Week Little Changed
After slumping to a fresh 3-year low earlier in the week, the Pound Euro exchange rate looks likely to close out Friday little changed from the week’s opening levels.
The UK’s latest public borrowing figures had little impact on Sterling and failed to help the British currency hold the 1.16 high achieved on the back of impressive retail sales stats.
As it stands GBP/EUR is trending in the region of 1.1589
Next week high-profile UK data is in short supply, with only mortgage applications figures and Friday’s Q2 GDP reports likely to inspire much Pound Euro exchange rate movement.
The Eurozone’s economic calendar is looking a little more lively with PMI figures, growth data and the IFO sentiment gauges all due for release.
(Previously Updated 18/08/2016)
GBP/EUR briefly dipped to a three-year-low of 1.1472 on Tuesday, but has since gained almost a cent and a half in value due to a hat trick of better-than-expected UK datasets from July. The pair surged to a new weekly high of 1.1648 on Thursday and trended in the region of 1.1610 in the afternoon.
With data fairly light towards the close of the week, can the Pound hold this week’s gains against the common currency or will it fall back towards the week’s lowest levels?
Pound (GBP) Rally Extended on UK’s July Retail Sales
The Pound continued this week’s advance on Thursday as yet another UK July dataset came in above expectations, making that a hat trick for this week despite the data having been collected during the first month since the Brexit vote.
Tuesday’s Consumer Price Index (CPI) impressed, Wednesday’s jobless claims showed an unexpected decline and then Thursday’s UK retail sales outperformed, potentially the most impressive result of all. Sales improved from -0.9% to 1.5% month-on-month, and the yearly figure jumped from 3.9% to 5.4%.
July’s impressive retail sales were potentially not influenced by the Brexit as much as many previously estimated they would be however.
The Office for National Statistics (ONS) stated that July’s surprisingly hot weather caused a surge in summer clothing sales. A weaker Pound is also speculated to have caused an increase in tourism and tourist purchases throughout the month. According to Samuel Tombs from Pantheon Macroeconomics;
‘July’s retail sales figures show that consumers have been protected from the immediate fallout of the Brexit vote, but with firms intending to stop hiring and inflation set to soar, the High Street is set for a tough year.’
Regardless of the uncertain long-term outlook and the looming possibility of further BoE easing, Investors took the week’s better-than-expected UK ecostats as the perfect opportunity to buy into the Pound.
Euro (EUR) Firm on Cautiously Optimistic ECB
The Euro continued this week’s sturdy streak on Thursday, but was unable to keep the bullish Pound at bay, ultimately leading to GBP/EUR gaining around half a cent on Thursday morning alone.
Following the week’s relatively quiet Eurozone economic calendar, Thursday’s session gave Eurozone traders a little more to work with on the back of a fresh July inflation report, as well as the European Central Bank’s (ECB) latest meeting minutes report.
While the Eurozone’s monthly Consumer Price Index (CPI) score worsened from 0.2% to -0.6% from June to July, the yearly score was enough to impress some investors, coming in at 0.2%.
Shortly after the inflation report, the ECB’s July meeting minutes were published. This report went into further detail on the bank’s decision to leave monetary policy frozen in July. Reuters reported;
‘The accounts of the meeting suggested the ECB’s Governing Council, which will meet again on Sept. 7-8 and examine new inflation forecasts, was in no rush to act, taking comfort from a calmer-than-expected market reaction to the Brexit vote even though risks had “clearly increased”.
“It was widely felt among members that it was premature to discuss any possible monetary policy reaction at this stage,” the ECB said. “More time was needed to assess the incoming information over the coming months, although downside risks had clearly increased.” …
A modest uptick in euro zone inflation in July was confirmed by data on Thursday. Euro zone prices rose 0.2 percent year-on-year, although that remained well below the ECB’s target of near 2 percent.’
The day’s news kept the Euro trending narrowly as it remained sturdy, but investors were anxious to drive the currency much higher due to the ECB’s vague outlook.
GBP EUR Exchange Rate Forecast: Eurozone’s August PMIs Next Week
The next key point of influence for the Pound to Euro exchange rate will be next week’s Eurozone PMI reports. These preliminary August scores will be the second batch to have been collected since Britain’s vote to Leave the EU.
Friday’s session does include British and Eurozone ecostats, but they will not be as influential as Thursday’s publications proved to be.
German producer prices could give the Euro a little more direction into the end of the week, but Sterling will likely continue to edge higher unless July’s public sector net borrowing figures indicate some form of shocking Brexit damage.
As it stands, the Pound to Euro exchange rate is on track to fluctuate with an upward bias as the week nears its end. However, its advances are likely to be limited due to the strong possibility of Bank of England (BoE) stimulus weighing on Sterling.
Next week’s UK economic calendar is actually relatively quiet, and as a result the Eurozone’s PMIs and key German datasets will likely drive next week’s GBP EUR exchange rate forecast.