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GBP EUR Rising Despite Unimpressive UK Trade Balance Results

  • GBP EUR Exchange Rate Remains Near 1.10 – Struggles to sustain recovery attempts
  • Eurozone Data Fails to Support Euro – Stronger US Dollar (USD) causes Euro weakness
  • GBP Update: UK Trade Stats Disappoint – Sterling advances regardless
  • EUR Forecast: German Inflation Due Friday – Week’s biggest Eurozone dataset

Updated 12:52 BST 10/08/2017:

Britain’s June trade balance update did little to inspire GBP EUR exchange rate movement on Thursday.

The trade deficit deepened from a revised £-2.52b to £-4.56b, the worst deficit print in nine months. The drop was largely due to poor UK exports in June.

Despite the disappointing trade data however, the Pound advanced against the Euro.

This was largely because investors continued to seek out ‘safe haven’ currencies amid geopolitical jitters. With the US Dollar (USD) still strengthening, the Euro weakened and GBP EUR climbed.

[Published 06:00 BST 10/08/2017]

Sterling benefitted from market risk-aversion yesterday, helping the GBP EUR exchange rate to climb away from its lowest levels in seven years. However, the pair’s gains were limited as the Pound has not been supported by domestic news yet this week.

Following last week’s BoE-inspired slump, GBP EUR has been unable to recover to the level of 1.11. GBP EUR opened at the level of 1.1072 on Monday and after briefly dipping to a 2017 low of 1.1008 the pair has trended near the week’s opening levels.

Pound (GBP) Recovers from Lows in Risk-Averse Market

Investors bought the Pound back up from its worst levels in the middle of the week. The British currency held above key support levels thanks to a market movement away from risky investments.

Geopolitical tensions between the US and North Korea have flared up again, causing new market concern that one of the nations could take military action on the other.

Investors were spooked into buying safer currencies, like the US Dollar (USD) or Japanese Yen (JPY).

As the US Dollar is often negatively correlated to the Euro, a stronger ‘Greenback’ meant a weaker Euro.

The Pound is also still seen as a relatively safe currency despite persistent Brexit concerns over the last year, making it easier for the Pound to Euro exchange rate to advance.

However, Sterling’s gains were limited as there has been little domestic reason for investors to buy the currency lately.

Brexit concerns persist, with markets becoming increasingly concerned that UK-EU negotiations are not going smoothly enough to guarantee a quick post-Brexit trade deal.

On top of this, last week’s Bank of England (BoE) meeting made it evident that the bank did not believe Britain’s economy would be able to support tighter monetary policy any time soon.

Euro (EUR) Limp amid Lack of Strong Eurozone Data

While many analysts believe the long-term Euro outlook still has more strength ahead of it, this week’s Euro trade has been relatively limp due to a lack of reasons to continue buying into the shared currency.

Some low-influence Eurozone ecostats have impressed, which has helped the Euro to hold its ground slightly. Italy’s June industrial production results beat expectations, for example.

Month-on-month production was forecast to slip from 0.7% to 0.2%, but instead came in at 1.1%. Meanwhile, the yearly print beat forecasts of 3.4% and came in at 5.3%, though the previous figure was revised lower from 2.8% to 2.7%.

However, most of the week’s notable German data so far has failed to meet expectations.

German industrial production contracted at -1.1% in June, while Germany’s June trade data saw big contractions in both exports and imports.

The Euro was also pressured by strength in the US Dollar (USD) on Wednesday. Demand for ‘safe haven’ currencies left the US Dollar much stronger, making its rival the Euro less appealing.

GBP EUR Forecast: UK Trade and German Inflation Round off the Week

After relatively quiet GBP EUR trade for the first half of the week, investors will have a lot more notable data to digest on Thursday and Friday.

Thursday will see the publication of all of the week’s most notable UK data. This will include June’s UK trade deficit update, industrial production, manufacturing production and construction output results.

If the day’s UK data is disappointing, the Pound to Euro exchange rate is likely to slip back, though its losses may be limited if GBP EUR is kept above key support levels.

If Britain’s deficit unexpectedly worsens or doesn’t lighten as much as hoped, it will worsen concerns that the Pound’s loss in value since last year has had no major positive effect on Britain’s economy.

On the other hand, a lighter-than-expected UK deficit would have the opposite effect and help the Pound to make a more solid recovery against the Euro.

As for Euro trade, Friday will see the publication of Germany’s final July Consumer Price Index (CPI) report.

This has the potential to be very influential if it comes in above or below expectations, but the Euro’s trajectory will be unchanged if it meets projections.

If German inflation is worse than expected, the Euro could fall as investors speculate the European Central Bank (ECB) could be more likely to extend its quantitative easing (QE) program than unwind it.

Stronger-than-expected German inflation would lead to a stronger Euro though, and could push GBP EUR down towards its worst 2017 levels.