GBP/EUR Settles after Bullish Afternoon
- Pound (GBP) Attempts Rally on Mixed Trade Balance– Up in March but down in Q1 overall
- German Trade Balance Largely Positive– But industrial production slips
- UK Production Mixed – Headlines of industrial recession hold down GBP
- Update: ‘Super Thursday’ Facilitates Pound Recovery– Unanimous freeze surprises investors
- Forecast: Eurozone GDP Due – As well as German GDP and CPI
After soaring to a new two-week high of 1.2740 on the back of the Bank of England’s (BoE) unanimous interest rate freeze, the Pound to Euro exchange rate dipped slightly to trade around 0.6% up on opening levels, in the region of 1.2710.
Headlines were taken aback on Thursday due to a comment from BoE Governor Mark Carney that one of the potential risks of a ‘Brexit’ could include a technical recession.
On the other hand, Euro investors will likely continue to adjust their positions ahead of Friday morning’s key datasets; including highly anticipated German and Eurozone Q1 Gross Domestic Product (GDP) reports as well as Germany’s final April Consumer Price Index (CPI) prints.
GBP/EUR Soars as Investors React to Unanimous ‘Super Thursday’
The Pound quickly shot up to an almost weekly high in Thursday’s session in response to the Bank of England’s (BoE) ‘Super Thursday’ announcements.
While interest rates remained frozen at a low 0.50%, investors were surprised by news that BoE policymakers had unanimously decided to keep them frozen, despite estimates that some policymakers would vote for a rate cut.
The news showed confidence in the current rate even amid ‘Brexit’ concerns harming the domestic economy. The Pound’s recovery may have been slowed by news that BoE growth forecasts were cut from 2.2% to 2.0% however.
GBP/EUR was up around 0.4% at the time of writing, with the Euro easily giving way to Sterling’s boost due to disappointing Eurozone industrial
production. Production slowed to 0.2% year-on-year, and contracted -0.8% in its monthly score.
With the Bank of England’s ‘Super Thursday’ trio of announcements looming, the Pound Sterling to Euro (GBP/EUR) exchange rate stabilised.
GBP/EUR was left trending in the region of 1.2644 but could record notable losses if any of the 9 member Monetary Policy Committee vote to cut interest rates at today’s policy gathering.
A dovish inflation forecast from the central bank would also be Sterling negative, as would reductions to the UK’s growth forecasts.
In light of the current political climate and ongoing ‘Brexit’ concerns, some economists are envisaging a rather dovish set of announcements.
GBP/EUR Slips as UK Production Reveals Industrial Recession
UK industrial and manufacturing production reports proved worse than investors feared during Wednesday’s session as the largely poor dataset allowed the limp Euro to advance on the Pound.
Iron and steel in particular saw a production drop of a huge 37.3% in March compared with March 2015, with manufacturing production falling by its highest amount since 2013.
The Office for National Statistics (ONS) confirmed in the dataset release that UK industry had indeed fallen into recession for the third time since 2008, a revelation that throttled the Pound and sent GBP/EUR down almost -0.4% on Wednesday.
Although Wednesday’s UK Industrial/Manufacturing Production reports could give the Pound a boost if they print above forecast levels, the GBP/EUR exchange rate softened as European markets opened.
The hope that the ongoing Greek bailout discussions will end positively are lending the Euro (EUR) support, while the Pound (GBP) remains in a weakened state following last week’s raft of less-than-impressive UK data and yesterday’s mixed deficit results.
The GBP/EUR exchange rate is currently trending in the region of 1.2661, down 0.25% on the day’s opening levels.
The Pound Sterling to Euro (GBP/EUR) exchange rate attempted to advance throughout Tuesday’s session but ultimately only gained narrowly on the day’s opening levels after poor UK deficit news weighed on its movements.
GBP/EUR climbed to near a weekly high of 1.2701 on Tuesday morning as investors reacted to what seemed like an optimistic report. However, at the time of writing the pair was only up around 0.2% and trended in the region of 1.2685.
Pound (GBP) Struggles to Gain as Trade Deficit Widest Since 2008
Initially seen as a chance to engage in profit-taking after the Pound’s bearish movement last week, a seemingly optimistic UK trade balance release was undermined by details within the report.
Investors previously sold the Pound after economists suggested that British growth could slow to near-stagnation following poor PMIs last week. This week, however, the Pound’s chances of recovery are being held down by news that Britain’s Q1 2016 trade deficit was the worst it’s been since 2008.
In March alone, the goods trade deficit narrowed from £-11.420b to £-11.200b while the total trade balance lightened from £-4.30b to £-3.83b.
The news initially lead to Sterling advancing. However, the Office for National Statistics’ (ONS) detailed report indicated that the deficit had widened quarter-on-quarter, causing the Pound’s rally to slow.
The BBC stated;
‘The gap between imports and exports for the first three months of 2016 stands at £13.3bn, up from £12.2bn in the fourth quarter of 2015, says the Office for National Statistics (ONS).
Analysts said this was more evidence of the weight of global economic weakness on the UK. One described the figures as “truly horrible”
UK economic growth has already slowed to 0.4% in the first quarter.’
Euro (EUR) Weakens on German Industrial Production Despite Optimistic Trade Surplus
Mixed German data released on Tuesday was unable to help inspire Euro appeal as the shared currency continued to trail slightly behind the UK deficit-weakened Pound.
Tuesday morning’s datasets included German industrial production data and the March update to Germany’s trade balance reports.
Trade reports indicated that Germany’s trade surplus was healthy, with the trade balance improving from 20.2b to 26.0b, beating out expectations of 20.6b. The current account also improved from 21.1b to 30.4b.
Exports grew an additional 1.9% month-on-month despite forecasts that they would remain stagnant in March. Imports, on the other hand, dropped by -2.3%.
Unfortunately, the Euro was weighed down by fresh German industrial production data, which printed considerably below expectations. Industrial production was up only 0.3% year-on-year from the previous score of 2.0%, disappointing forecasts of a 1.1% improvement.
Monthly production fared worse, with February’s contraction of -0.7% being beaten by March’s poor score of -1.3%. The figure was predicted to narrow to -0.2%.
Pound Sterling to Euro Exchange Rate Forecast: Will GBP/EUR See Movement Ahead of ‘Super Thursday’?
The Eurozone’s economic calendar is set to be largely quiet today, with relatively light Portuguese CPI and Unemployment rates due for release this morning.
This means that unless Eurozone headlines inspire the Euro, the GBP/EUR exchange rate is more likely to let the Pound take point on Wednesday.
British data includes March’s industrial and manufacturing production reports, most of which are expected to mark improvements over the previous prints. For example, industrial production is expected to improve from negative territory of -0.3% to 0.5% month-on-month.
Only year-on-year manufacturing production is forecast to worsen, from -1.8% to -1.9%. As such, this figure printing better-than-expected could bolster Sterling appeal.
The Pound is also likely to be influenced by NIESR’s Gross Domestic Product (GDP) estimate, due for release in the afternoon. As the estimate comes soon after last week’s warnings of near-stagnant UK growth, a score lower than 0.3% could cause investors to grow wary of the Pound.
Failing Wednesday movement, GBP/EUR is certain to be influenced on ‘Super Thursday’, which sees the release of Eurozone industrial production data as well as Bank of England (BoE) interest rate and inflation announcements.