- GBP EUR Exchange Rate Around 1.1650 on Wednesday – Little movement during European session
- UK Public Sector Net Borrowing Beats Expectations – But not enough to strengthen Pound
- Eurozone Consumer Confidence Meets Expectations – Slight improvement met
- Update: Eurozone PMIs Mixed – Manufacturing up, Services down
- Forecast: German Stats Due Next Week – GBP could remain weak on Brexit speculation
GBP EUR Exchange Rate Plummets on Article 50 Speculation
The Pound to Euro exchange rate plummeted to new monthly lows on Friday, quickly losing Thursday’s advances in the morning and falling as low as 1.1527 by the afternoon. GBP EUR’s lowest 2016 level is 1.1523, which occurred on the 15th of August.
Sterling’s latest plummet came as a market reaction to comments made by Britain’s foreign secretary, Boris Johnson on Friday morning. In an interview, Johnson stated that the formal Brexit process would ‘probably’ begin in early 2017, which sent markets into a panic.
The timing for Britain’s activation of Article 50 has been the source of much speculation since the Brexit vote in June, but the possibility of an early 2017 activation weighed on Sterling due to concerns about Britain’s post-Brexit access to the European Union’s single market.
The Euro, on the other hand, saw mixed movement on Friday due to the day’s mixed PMI results. Manufacturing beat expectations in Germany, but Services were so poor they dragged the Composite score down for the Eurozone bloc.
GBP EUR may struggle to sustain a strong recovery next week unless Brexit speculation cools. If it doesn’t, the Pound Euro exchange rate could easily fall to new three-year-lows.
(Previously updated 16:34 BST 22/09/2016)
GBP EUR Exchange Rate Buoyed by BoE Bull
The Pound to Euro exchange rate has seen little movement from Wednesday, but despite an increase in Euro strength following the Federal Reserve’s disappointing interest rate freeze on Wednesday evening Sterling has done well in holding its ground.
Sterling was actually boosted against many other rivals thanks to fresh comments from the Bank of England (BoE) published on Thursday.
The BoE’s Financial Policy Committee’s (FPC) latest statements claimed that the British economy had challenging times ahead, but hawkish BoE policymaker Kristin Forbes argued that further monetary easing measures were not necessary in the coming months.
After Wednesday’s ONS report, this was enough to keep Sterling sturdy on Thursday. The Euro, on the other hand, continued to trend solidly as investors bought into EUR/USD, but the day’s Eurozone consumer confidence report did little to impress markets after meeting expectations of a slight improvement.
(Published 06:00 BST 22/09/2016)
Wednesday’s European session saw little that influenced the GBP EUR exchange rate, with most of the foreign exchange market’s focus on central bank news from elsewhere.
GBP EUR has remained near the week’s lowest levels of 1.1589 and has generally struggled to sustain any marked recoveries, fluctuating around the region of 1.1650.
Pound (GBP) Limp Despite Comments Suggesting Little Brexit Impact
UK markets remained bearish on Wednesday, hesitant to buy back into the Pound despite a lack of bad news and even some optimistic factors for the UK economy.
On Wednesday, the Office for National Statistic (ONS) published an assessment of the British economy since the referendum back in June, and in summary did not find that the vote for Brexit had had a strong effect on the UK economy yet.
‘The fall in the value of Sterling has so far had little effect on prices. Prices of material and fuel purchased by producers – “input prices” – increased in July and August at about the same rate as in the previous 2 months; 12-month growth rates have accelerated but mainly as last year’s sharp declines fall out of the calculation. There is also little sign yet of an effect on factory gate or consumer prices.’
Despite this report investors remained bearish on the Pound itself, as they anxiously set their sights forward to a post-Brexit Britain.
The Bank of England (BoE) had been relatively dovish in its meeting last week and hinted that more easing would be necessary if economic activity did not remain solid in September.
This, as well as diminishing hopes that Britain would be able to maintain access to the single market following the Brexit process weighed on Sterling demand on Wednesday, preventing it from capitalising on a weak Euro.
Euro (EUR) Holds Ground During Wednesday European Session
The Euro didn’t see much in the way of inspired movement during Wednesday’s European session as most of the foreign exchange market had its sights set on the day’s Federal Reserve news.
As a result, the currency was easily taken advantage of by some of its stronger rivals, but the Euro generally avoided losing too much value throughout the day.
The shared currency strengthened earlier in the week as investors doubting the possibility of a US interest rate hike from the Federal Reserve sold off the US Dollar in favour of the Euro.
However, while Euro volatility dropped, this movement was temporary at best and the currency still lacked the data needed to support a sustainable increase in value.
GBP EUR Exchange Rate Forecast to Move on Thursday and Friday’s Eurozone Data
The GBP EUR exchange rate will finally begin to see more influential data published beginning Thursday that could inspire movement for the rest of the week.
Thursday’s session will see the publication of the Eurozone’s preliminary September consumer confidence report, which is expected to have lightened slightly from August’s score of -8.5 to around -8.2.
However, if the score comes in around or just above expectations, the Euro is unlikely to benefit much as investors will hesitate to call it a real improvement.
What will be far more influential and is sure to cause Pound and Euro movement towards the end of the week will be Markit’s preliminary September PMIs for the Eurozone, publishing on Friday morning.
As usual, markets will be focused particularly on how Germany and the overall Eurozone’s economic activity has been. August’s PMIs disappointed investors after failing to meet expectations and indicating that the growth in Eurozone activity was slowing.
Currently, markets are expecting the Eurozone’s overall Composite PMI to have worsened slightly from 52.9 to 52.8 from August to September. If PMIs beat expectations it will likely improve hopes of Eurozone growth and inflation in the coming months, which could lead to a Euro rally.
On the other hand, if Friday’s preliminary PMIs come in below expectations this could cause Euro demand to plummet, and the GBP EUR exchange rate would likely be able to sustain a recovery on Friday and next week.