- Pound (GBP) Rebounds Ahead of Referendum – June vote now only a month away
- ‘Remain’ Campaign Issues New Warnings – Osborne claims ‘Brexit’ could trigger recession
- Euro Uninspired on Mixed ZEW Surveys – Current situation improves, economic sentiment declines
- UPDATE: Pound Hits High of 1.3124 Vs Euro – Are further gains likely?
Pound Rallies to Best Rate of 1.32 Despite Improved German Confidence
An impressive week for the Pound Sterling to Euro exchange rate continued on Wednesday with the pairing pushing above the 1.31 level ahead of the release of German IFO surveys.
The GBP/EUR exchange rate advanced on declining Brexit concerns despite the German GfK Consumer Confidence Survey printing at 9.8 instead of the 9.7 expected by economists.
GBP/EUR extended gains despite the day’s other German reports (including the IFO Business Climate, Current Assessment and Expectations indexes for May) all coming in higher than forecast.
In a news release IFO President Clemens Fuest commented; ‘The German economy is growing at a robust pace.’
This data may have been positive but the Pound to Euro exchange rate was still able to clamber all the way to 1.3218 before the close of the European session.
(Previously updated 17:15 24/05/2016)
GBP/EUR Above 1.30 on Mixed German Data, Carney Comments
As Tuesday’s session progressed the Pound Sterling to Euro (GBP/EUR) exchange rate gained 0.7%, hitting a high of 1.3018.
The Pound managed to remain trending in a stronger position against the Euro despite UK public borrowing data showing that Britain’s government borrowed more-than-expected in April.
Support for Sterling came in the form of another EU Referendum related poll showing a substantial lead for the ‘Remain’ campaign.
Support is now split 55% to 42% respectively.
Bank of England (BoE) Governor Mark Carney also denied being ‘politically biased’ about a Brexit.
In reference to his comments relating to the risks attached to the EU Referendum, Carney stated that the central bank has a ‘responsibility under [it’s] remit to report not just the current trade-off that may hold in terms of returning inflation to target in a sustainable manner, but the risks, the principle risks, around that trade off.’
Although Germany’s first quarter growth report was unrevised from previous estimates (showing a quarterly rate of expansion of 0.7% and annual, non seasonally-adjusted output of 1.3%) the Domestic Demand measure came in slightly below forecasts.
The German ZEW Economic Sentiment gauge also dropped from 11.2 to 6.4 in May.
According to ZEW President Achim Wambach;
‘The strong growth of the German economy in the first quarter of 2016 appears to have surprised the financial market experts. However, they seem not to expect the economic situation to improve at the same pace going forward. Uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook.’
UK data is lacking on Wednesday, meaning investors will largely be looking ahead to Thursday and the publication of the nation’s first quarter growth data.
(Previously updated at 8:30am on 24/05/2016)
The Pound Sterling to Euro (GBP/EUR) exchange rate largely fluctuated throughout Monday’s session as investors began to grow wary of the Pound once again with just a month to go until June’s EU referendum.
Although polls published last week indicated victory for the ‘Remain’ camp, subsequent publications have implied that the vote could be extremely close.
GBP/EUR briefly hit a high of 1.2974 after Eurozone PMI printed below expectations, but bounced back to trade narrowly on the week’s opening levels of 1.2925 as ‘Brexit’ debates lit up UK headlines.
Pound (GBP) Attempts to Advance on Low ‘Brexit’ Bets, Held Back by Investor Jitters
While bets that the UK will leave the EU in June’s upcoming referendum continue to be low, news on Monday revealed that the Pound had reached high levels of volatility once again as investors take wary stances on Sterling’s uncertain future.
With Monday’s British economic calendar relatively light, the forex market was left to trade on the latest ‘Brexit’-related news. Last week’s polls put the chances of a ‘Brexit’ even lower, but with less than a month to go until the historic vote, Sterling investors have become anxious.
With exactly a month to go before the referendum on Britain’s membership in the European Union, a measure of pound price swings jumped to the highest since February. One-month implied pound-dollar volatility rose above 11 percent on Monday, while a two-month measure has been higher than a three-month measure since late April, showing investors are concerned sterling gyrations will surge around the time of the vote.
As debates between the ‘Remain’ and ‘Leave’ campaigns heat up, the Pound is fluctuating due to investors being unsure of whether to expect uncertainty or continue business as usual.
Euro (EUR) Flounders on Poor Eurozone PMI Despite Otherwise Optimistic Data
The Euro briefly dropped on Monday morning after the release of May’s preliminary PMI results, which came in better-than-expected for Germany but worse-than-expected for the Euro.
German Manufacturing improved from 51.8 to 52.4, past the projected 52. Services climbed to 55.2, despite being expected to remain at 54.5. The Composite print overall impressed, by surpassing the estimated score of 53.9 and gaining from 53.6 to 54.7.
Markit economist Chris Williamson said of the Composite result;
‘A disappointing flash eurozone PMI for May adds further to the suggestion that the robust pace of economic growth seen in the first quarter will prove temporary. The PMI is signalling lacklustre GDP growth of only 0.3% in the second quarter. The forward-looking indicators also suggest that growth is more likely to weaken further than accelerate. Inflows of new work showed the smallest rise for nearly a year-and-a-half, while optimism about the business outlook in the service sector sank to its lowest since July 2015. There are signs of improving life in the ‘core’ countries of France and Germany, led mainly by their service sectors, as manufacturing continued to struggle. However, elsewhere the rate of expansion slowed to its weakest for almost one-and-a-half years. ‘
Preliminary Eurozone consumer confidence also looks to improve in May, with the previous score of -9.3 narrowing to -7.0, beating out the expected -9.0.
Euro traders seemed to be held back by the poor scores of Eurozone PMI however. Manufacturing slipped from 51.7 to 51.5 despite expectations that it would improve to 51.9 and Services remained at 53.1, undermining projections of an improvement to 53.2. Overall, the Eurozone Composite results worsened from 53.0 to 52.9, letting down expectations of a 53.2 score.
This comes after news from European Central Bank (ECB) policymakers over the weekend inspired mixed reactions from investors. While ECB Council Member Francois Villeroy stated that the ECB’s measures were having an optimistic effect on Eurozone banks, Chief Economist Peter Praet worried Euro investors by reasserting the ECB’s intention to use a wide variety of tools to prevent deflation.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Will Sterling Volatility Worsen?
Britain’s economic calendar is set to remain relatively light until Thursday’s preliminary Q1 GDP release, with Tuesday only seeing the release of PSNCR’s public finance report alongside light central government NCR and public sector net borrowing reports.
As a result, Sterling is likely to continue to fluctuate in response to ‘Brexit’ debates, which could well light up British headlines from now until the June referendum. If the ‘Remain’ campaign continues to appear strong the Pound could remain relatively sturdy against the Euro, but strong arguments or support for ‘Leave’ could send Sterling plummeting.
Eurozone data is expected to be busier in comparison, with Q1’s final German Gross Domestic Product (GDP) report headlining Tuesday’s session. Currently, the score is estimated to remain at 0.8% quarter-on-quarter and 1.6% year-on-year.
This will be followed later on by the latest ZEW surveys, with current situation and economic sentiment surveys for Germany and a economic sentiment survey for the general Eurozone.
The Pound Sterling to Euro (GBP/EUR) exchange rate currently trends in the region of 1.2915, while the Euro to Pound Sterling (EUR/GBP) exchange rate trends around 0.7743.