- Deutsche Bank Hit by $14b Fine from DoJ – Due to mis-sold mortgage bonds a decade ago.
- UK Ranks Highly on Table of Global Competitiveness – But ‘Brexit’ risks reversing this says WEF.
- ‘Brexit’ Still Leading Market Sentiment Towards the Pound – Lack of data causes focus on ‘hard Brexit’
GBP EUR Down 0.3% – Further Losses Ahead?
After beginning the day steadily the Pound Euro exchange rate dropped to a low of 1.1574 as trading continued. Demand for the pairing eased as BoE easing concerns persisted, initial fears surrounding the Deutsche banking crisis faded and the Eurozone published positive confidence data.
The Eurozone’s gauge of economic confidence climbed from 103.5 to 104.9 despite expectations for no change while the industrial confidence index improved from -4.4 to -1.7.
Although separated data showed an unexpected increase in German unemployment, the uptick was minimal and had little impact on GBP EUR trading.
According to Reuters; ‘German unemployment rose slightly in September, confounding forecasts, but the jobless rate in Europe’s biggest economy remained at a record low, figures from the Federal Labour Office showed on Thursday.The seasonally adjusted jobless total increased by 1,000 to 2.680 million, the Labour Office said. That compared with a consensus forecast in a Reuters poll for unemployment to fall by 5,000. The adjusted unemployment rate remained at 6.1 percent, the lowest level since German reunification in 1990.’
Meanwhile, UK mortgage approvals were shown to have fallen to their lowest level since November 2014 in August.
Of this data Reuters stated; ‘Less comprehensive figures from the British Bankers’ Association released on Monday had shown the number of mortgages approved by banks fell to the lowest since January 2015 in August. Before the referendum, Britain’s government warned that a vote to leave could reduce a projected rise in house prices by 10 percentage points, and last month the BoE said it expected monthly mortgages approvals to fall to 56,000 in the second half of the year – the lowest since early 2013. More recently, however, the BoE has said the housing market is not slowing as much as it expected, especially outside London, and the Royal Institution of Chartered Surveyors has said prices look set to continue to rise.’
Later the Euro received further support as Germany’s inflation data printed more strongly than expected, coming in at 0.7% on the year in September rather than 0.6% and rising 0.1% on the month.
The data bodes well for tomorrow’s Eurozone CPI coming in above forecast levels.
The GBP EUR exchange rate remained trading below 1.16 as the end of the European session approached.
(Previously updated 08:30)
Pound Euro Exchange Rate Back to 1.16 before German CPI
By Thursday the Pound Euro exchange rate had returned to trending in the region of 1.16. While there is little in the way of influential UK data to drive GBP EUR movement in the hours ahead, the nation’s Mortgage Approvals number for August could inspire movement.
Pound Euro volatility is more likely to follow the release of Germany’s Consumer Price Index for September, particularly if the result differs from forecasts.
(Previously updated: 29/09/2016)
The GBP EUR exchange rate bounced back this morning, as worries over a potential $14b fine for Germany’s biggest lender, Deutsche Bank could have dire consequences for the single currency.
Pound (GBP) Trims Losses against the Euro (EUR)
Although the Pound Euro (GBP EUR) exchange rate is still struggling to push back above the 1.16 level, Sterling’s losses have been limited by news from the currency bloc.
Investors are worried about a potential collapse of the Deutsche Bank group as the US Department of Justice (DoJ) levied a $14b fine against the bank over the mis-selling of mortgage bonds a decade ago. It looks unlikely that German Chancellor Angela Merkel will agree to a government intervention after the mess of the 2008 banking crisis lead to tighter rules on bailouts.
The sheer size of Deutsche Bank has investors worried that the crisis could bring down both Merkel, and the Euro which is so closely tied to the German Economy, as the Telegraph points out;
‘If Deutsche Bank went down … It would almost certainly land a fatal blow to the Italian banking system, and the French and Spanish banks would be next. Even worse, the Euro-zone economy, with France and Italy already back at zero growth, and still struggling with the impact of Brexit, is hardly in any shape to withstand a shock of that magnitude.’
Things were looking slightly more positive this morning however, as Deutsche Bank share prices were up 3% as CEO John Cryan denied asking for help from Angela Merkel. The Bank has also agreed to sell its UK life assurance group Abbey Life for £935m, and despite a £800m pre-tax loss on the sale the bank says that it will have a net positive impact on capital.
Subsequently, the Euro (EUR) firmed against the Pound (GBP) as trading continued, with the GBP EUR exchange rate recording a low of 1.1572.
Pound (GBP) Performance Mixed as UK Ranks Highly on Global Competitiveness amidst Warning from WEF over ‘Brexit’
Pound Sterling (GBP) exchange rates were affected positively by the news that the UK has received it highest ranking for Global Competitiveness in over a decade. Britain had gained three places in the last year to rank seventh on the table, but was warned by the World Economic Forum (WEF) that ‘Brexit’ could potentially reverse this trend. WEF said;
‘Although the process and the conditions of Brexit are still unknown, it is likely to have a negative impact on the United Kingdom’s competitiveness through goods and financial markets as well as market size and, potentially, innovation.’
British chancellor Phillip Hammond welcomed the news however, as he said that ‘today’s report demonstrates our ability to sharpen our edge and improve our competitiveness’, while international trade secretary Liam Fox said that the UK would push for greater trade liberalisation after ‘Brexit’.
Forecast: GBP EUR Exchange Rate tied to Market Sentiment on ‘Brexit’ amidst lull in Domestic Data
The Pound suffered earlier this week as support for a ‘hard Brexit’ appeared to be gain momentum within the UK government, spooking investors who fear a focus on tighter immigration controls will deny the UK access to the single market.
Thursday will bring the first significant domestic data of the week, giving markets something other than ‘Brexit’ to focus on. The reports are likely to be mixed however, as the consumer credit report is forecast to show an increase in borrowing, while the mortgage approval data is predicted to show a slight fall.
Current Exchange Rate
At the time of writing the GBP/EUR exchange rate was trending around 1.1592 and the EUR/GBP exchange rate was trending around 0.8662.