- Pound Euro Exchange Rate Forecast to Struggle – Will the pair remain above 1.17?
- Pound Boosted by Conservative Leadership Conclusion – Theresa May to be new UK PM
- Forecast: May To Take Office – New Prime Minister to be in place by Wednesday evening
- Forecast: Markets Still Anticipating BoE Decision – Key meeting mere days away
Pound Euro Exchange Rate Slips up on Wednesday
The Pound Euro exchange rate fell from its weekly best levels of over 1.20 throughout Wednesday session, as market anxiety over the Bank of England’s (BoE) upcoming meeting caused investors to readjust the Pound’s value. At the time of writing, GBP/EUR trended just below 1.19.
After a thoroughly bullish Tuesday, investors didn’t hesitate to sell the Pound off on Wednesday, despite the day’s Prime Minister-related festivities.
The mood in Parliament was generally cheery as outgoing Prime Minister David Cameron delivered his final Prime Minister’s Questions (PMQs) and prepared to have over the title of Prime Minister to Theresa May, via Her Majesty the Queen.
Analysts still widely anticipate an interest rating cut during tomorrow’s BoE policy decision meeting, which is likely to send Sterling downward until the end of the week.
Whether or not the Pound falls back to the lowest levels recorded in the post-EU referendum period may depend on the extent of the rate cut. A slash to 0.0% could send the Pound reeling.
(Previously updated 16:20 BST 12/07/2016)
Pound Euro Exchange Rate Bullish on Tuesday
The Pound Euro exchange rate briefly reached above the key level of 1.19 on Tuesday afternoon as markets continued to react bullishly to news that Britain’s new Prime Minister could take office as soon as Wednesday evening.
However, while investors currently enjoy the Pound’s rally it is likely to be highly temporary as Thursday’s Bank of England (BoE) meeting approaches.
The GBP/EUR exchange rate could easily fall back down to 1.18 or lower during Wednesday’s session as investors readjust their position on the Pound.
A widely expected interest rate cut (among other stimulus) from the central bank would likely send Sterling plunging downward, meaning investors may want to sell off ahead of the meeting.
GBP/EUR’s recovery rally has been impressive overall, having returned to levels not seen since the beginning of last week. Sterling still remains pressured and volatile however, and could easily lose its recent gains entirely in the coming days.
(Previously updated 15:02 BST 12/07/2016)
Bets around when the UK’s new Prime Minister could take office are the key to today’s Pound Euro exchange rate forecast. Frontrunner Theresa May was confirmed to be the winner of the Conservative leadership contest following Leadsom’s exit on Monday.
Given that the leadership contest had been expected to run all over the summer, with a winner not being selected until September, this speedier result was well received by investors and the Pound was able to steady thanks to reduced political uncertainty.
While GBP/EUR briefly surged to levels around 1.1786 on the news, it soon slipped down to trend a little lower in the region of 1.1750. However, the news appeared to have saved GBP/EUR from Monday’s worst levels of 1.1648.
Pound Euro Exchange Rate Hits 1.18 Today
On Tuesday Germany’s final inflation figures for June confirmed initial estimates, with the annual figure holding at 0.3% and the month-0n-month result printing at 0.1%.
The data had little impact on the Pound Euro exchange rate, with the pairing rallying above the 1.18 level, gaining 1% on the day’s opening levels, amid improved Sterling sentiment.
The Pound was able to hold its stronger position in spite of stimulus related commentary from Bank of England (BoE) Governor Mark Carney.
According to The Scotsman: ‘Mr Carney had warned that a decision to leave the EU could tip the UK into a recession and lead to sharp falls in the value of the pound ahead of the vote. The comments were slammed at the time by supporters of the Leave campaign and led to calls for Mr Carney to resign as the Bank’s independence came into question.’
(Previously updated 08:00 12/07/2016)
Sterling (GBP) Boosted by Surprise Ending to Conservative Leadership Contest
The Pound initially dipped across the board on Monday morning as markets continued to readjust and revalue the Pound ahead of Thursday’s expected Bank of England (BoE) interest rate cut.
However, a sudden and surprising development in the ongoing Conservative Leadership contest around midday turned a session expected to be relatively uneventful into a vital one.
After being whittled down to a top two runners last Thursday, Theresa May and Andrea Leadsom, the campaign to pick the new Conservative Leader was expected to run into September.
However, Leadsom backed out of the race on Monday amid considerable support for May across the party, as well as the possibility that media pressure had proven too much for her. The BBC reported;
‘In her brief statement in Westminster, Mrs Leadsom – who was a leading light of the Brexit campaign – said a nine-week leadership campaign at such a “critical time” for the UK would be “highly undesirable”.
A source close to the energy minister told BBC political editor Laura Kuenssberg “the abuse has been too great” for Mrs Leadsom during the contest.
Mrs Leadsom had apologised to Mrs May on Monday after suggesting in a weekend newspaper interview that being a mother made her a better candidate for the job.’
The news briefly sent Sterling surging. However, the currency slipped from its best levels towards the end of the day as the imminence of a potential BoE interest rate cut pressured the Pound.
Euro (EUR) Sentiment Improves after Italian Banking Worries Eased
The Euro has seen mixed movement over the last week as Brexit worries have kept it weighed down – but still favourable compared to the Pound itself.
Another factor that weighed heavily on the Euro last week was news that Italian banks were becoming stuffed with bad debts. This was touted by some headlines as the next big Eurozone crisis.
However, the markets’ impression of this issue may not be a long lasting one, as Eurozone officials indicated on Monday that the Italian banking issue may have been overblown. ABC reported;
‘The Eurozone’s top official has sought to downplay concerns over the financial health of Italy’s banks, insisting that their problems are “not an acute crisis.”
Jeroen Dijsselbloem says that there are issues among Italian banks surrounding non-performing loans — in effect loans that aren’t going to be repaid — but that isn’t anything new.
Dijsselbloem, who spoke ahead of a meeting of the Eurozone’s 19 finance ministers Monday, said the issues will have to be “dealt with gradually.”’
However, the Euro wasn’t sturdy across the board, indicating that sentiment for the shared currency wasn’t exactly bullish.
Pound Euro Exchange Rate Forecast: Will GBP/EUR Remain Above 1.17?
For much of last week’s session, the Pound to Euro exchange rate failed to remain above the key level of 1.1700. However, after recovering above 1.17 for the weekend, the pair has since fluctuated flatly in this region.
Leadsom’s dropout from the Conservative leadership race led to Sterling recovering from its morning fall to levels around 1.1680, meaning that markets may set out to drive the Pound lower regardless in coming days.
This is also likely as the Bank of England’s (BoE) highly anticipated post-Brexit policy meeting is due to take place on Thursday. If the key interest rate is cut from 0.5% as markets expect, it would certainly send Sterling lower.
On the other hand, these expected losses could be slightly softened if the next Prime Minister, Theresa May, takes up office at some point this week and brings political stability to markets.
Analysts have been buzzing about the possibility of the new PM taking office by the end of the week. Outgoing Prime Minister David Cameron stated on Monday afternoon that he expected May would be in office by Wednesday evening.
Meanwhile, the Euro is likely to remain relatively sturdy in the coming days. Investors are likely to quickly jump to the Euro from the Pound at the first sign of uncertainty, and the Euro also benefitted from a lack of appeal in higher-risk currencies on Monday.