- GBP EUR Near 1.10 This Week – Pair trends closely to 2017’s worst levels
- Eurozone Industrial Production Disappoints – Euro traders remain optimistic though
- UK Inflation Disappoints – But wage growth beats expectations
- EUR Forecast: Eurozone Inflation Ahead – Could boost Euro if it impresses
Updated 16:53 BST 16/08/2017:
GBP EUR Recovers from Seven-Year-Low
Thanks to Britain’s latest job market report, the GBP EUR exchange rate recovered from the seven-year-lows below 1.10 seen on Tuesday.
However, the pair’s recovery was limited and struggled to hold above 1.10 due to strong Eurozone growth data.
The Eurozone’s second Q2 Gross Domestic Product (GDP) projection beat expectations of 2.1 and came in at 2.2% year-on-year.
Analysts remain optimistic about the Eurozone’s economic outlook.
[Previously updated 12:25 BST 16/08/2017]
After trending below the level of 1.10 on Tuesday, near its worst 2017 levels, the GBP EUR exchange rate recovered on Wednesday morning.
Britain’s June job market results beat expectations in most key prints, finally giving investors a reason to buy the undervalued Pound.
Not only did the UK unemployment rate unexpectedly improve to 4.4% – its best level in over 40 years – wage growth also beat expectations.
Wages were forecast to come in at 2% excluding bonuses and 1.8% including bonus, but both prints came in at 2.1%.
While real wages continued to fall due to the wide gap between inflation and wage growth, the better-than-expected data boosted Pound demand.
[Published 06:00 BST 15/08/2017]
The GBP EUR exchange rate was little changed during yesterday’s trade session as investors anticipate upcoming key data before making any big movements on the pair. Sterling has been persistently limp for over a week.
The Pound Euro pair tumbled from 1.1073 to 1.1002 last week and briefly touched on a 2017 low of 1.0969. Not including the flash crash last year, was the pair’s worst level since 2009. GBP EUR continued to trend near the level of 1.10 on Monday.
Pound (GBP) Weakness Persists Ahead of Key UK Data
Investors haven’t had any good reason to buy or sell the Pound in recent weeks, leaving the British currency limp and largely influenced by the strength of its rivals.
Last week’s UK data failed to offer the Pound any fresh support either.
While industrial and manufacturing production were solid in June, construction disappointed and Britain’s June trade deficit update unexpectedly deepened to its worst figure in nine months.
The trade deficit was predicted to come in at £-2.5b, but instead fell from £-2.52b to £-4.56b.
NIESR’s latest Gross Domestic Product (GDP) estimate also disappointed. The group predicts that UK growth slowed to just 0.2% from April to July, indicating that growth was slower than expected in July.
The Pound’s worries don’t look to be letting up any time soon either.
US investment bank Morgan Stanley offered up its latest Pound forecast on Friday, which predicts that in 2018 the embattled British currency could hit parity against the Euro for the first time ever.
Analysts from Morgan Stanley blame UK debts and Brexit uncertainties, holding back Britain’s growth outlook and by extension the appeal of the Pound;
‘Brexit uncertainty may also weigh on business investment, which will weaken the already lacklustre productivity growth outlook, suggesting real rates staying low.’
Euro (EUR) Demand Limited by Underwhelming Industrial Production
The Euro was unable to push GBP EUR lower on Monday as the day’s Eurozone data was underwhelming, giving investors little reason to keep buying into the shared currency.
While the Eurozone’s June industrial production report from June is far from the week’s most important report, it fell short of expectations in both major prints.
Year-on-year industrial production was forecast to slip from 4% to 2.8% but instead dropped from a revised 3.9% to just 2.6%. The monthly print was similar, contracting at -0.6% rather than the forecast -0.5%.
Despite the disappointing report, analysts noted that there was likely little to worry about in the long run. According to Bert Colijn from ING Bank;
‘Due to strength in orders and businesses noting strong improvements in production, it seems that an improved trend for production is still in the cards. This would indicate that the surprising growth in the Eurozone could continue in the second half of the year. But while a weaker June reading actually makes an acceleration in the third quarter easier, the manufacturing PMI fell to a six-month low in July. This false start to the quarter was also seen in other surveys, which could mean that 3Q GDP will be a touch weaker than the first half of the year, but that would still lead to a healthy 2% annual GDP growth rate for 2017. No need to become pessimistic about the Eurozone just yet.’
GBP EUR Forecast: UK Inflation Could Inspire BoE Speculation
Tuesday through Thursday will see the publication of multiple highly influential UK and Eurozone ecostats, meaning there is plenty of potential for the GBP EUR exchange rate to see a shift in movement in the coming days.
First up will be Germany’s Q2 Gross Domestic Product (GDP) projection, which is expected to improve from 1.7% to 1.9% year-on-year and from 0.6% to 0.7% quarter-on-quarter.
If Germany’s growth projection beats expectations, the Eurozone’s Q2 growth projection could be even higher than the current estimate of 2.1%. This would leave the Euro sturdy.
On the other hand, poor German growth data would dampen the Eurozone growth outlook and could weigh on European Central Bank (ECB) tightening bets.
The German growth report will be followed by Britain’s July Consumer Price Index (CPI) results.
UK inflation is forecast to have risen in July, and if it does (or beats expectations) it could reignite speculation that the Bank of England (BoE) may be pressured into tightening UK monetary policy.
The BoE could also become more likely to tighten UK policy if Wednesday’s UK wage growth results beat expectations.
Other notable data due in the coming days includes UK retail sales results and the Eurozone’s final July inflation report, leaving plenty for GBP EUR investors to digest.