The Pound Sterling to Euro (GBP/EUR) exchange rate was battered by positive German CPI mid-week and has been on a downtrend since, on a rollercoaster of Eurozone data faring far better than Britain’s handful of positive ecostats.
Lack of Progress in UK Steel Crisis Hurts Appetite for Pound
GBP/EUR has been on a bearish run since the middle of the week as circumstances fail to favour the Pound. Dropping around 150 pips in under two days, the pair had already sunk to a new 15-month-low yesterday from the week’s opening levels of 1.2652, despite being as high as 1.2757 on Wednesday.
Britain’s economic environment became even more uncertain this week, with Tuesday’s Bank of England (BoE) statement driving home the reality that a ‘Brexit’ could actually happen and would have severe impacts on the UK economy.
Tata Steel, an Indian steel production company with a considerable business supplying over 10k jobs in the UK, is also seriously considering dropping UK business support altogether in the latest shock to Britain’s economic stability.
Reasons for Tata’s proposed withdrawal from the UK include competition from China’s far cheaper steel prices hurting the appeal of UK-made steel. The Pound’s current volatility is also a key reason, with the company unable to discern the currency’s value amid UK’s economic uncertainty.
These concerns prevented the Pound benefiting from the news that UK consumer confidence printed at 0 over an expected contraction of -1.
More importantly, British GDP released yesterday came in at 2.1% year-on-year, improving from predictions of 1.9% growth. Unfortunately, this positive data was less than a momentary distraction for investors who were still dissuaded by the steel crisis as well as a larger than expected UK current account deficit.
Positive Eurozone Data Bolsters Euro Strength
Sterling has been taken down more than a few notches by the Euro since Wednesday thanks to bullish German CPI.
The print released on Wednesday afternoon showed that preliminary inflation results for the Eurozone’s biggest economy had doubled month-on-month to a healthy 0.8%, with year-on-year CPI now projected to rise 0.3%.
Both results were 0.2% higher than forecasts and inspired confidence that the Eurozone economy was growing despite continued dovish sentiment from the European Central Bank.
While German unemployment released on Thursday remained the same instead of getting around 6k people into employment as analysts predicted, positive preliminary Eurozone CPI released later in the day continued to keep the Euro in relative favour compared to the Pound as Sterling continued to plummet throughout the day.
Projections for March’s Core CPI in particular printed more positively than expected, advancing to 1.0% from 0.8%.
Pound Sterling to Euro Exchange Rate Forecast: Have GBP/EUR’s Biggest Movements Passed?
After a relatively quiet week for ecostats, only a few more important pieces of data are set for release today – however they still have the potential to inspire GBP/EUR movement.
The main events, all due later this morning, include Markit Manufacturing PMI releases for UK and France. Perhaps more influential though will be the Eurozone unemployment rate print, the last key data release due before the week crawls to an end.
Positive data from the Eurozone has the most chance of budging GBP/EUR further before the weekend.
Some analysts predict that progress will not be made on the UK’s steel crisis despite calls for action ringing through the news all week.
Current possible courses of action for the issue include Tata finding a buyer for its UK operations, a process some consider unlikely due to the unappealing financial nature of UK’s steel industry – with the company currently losing £1m per day through the UK’s faltering steel industry.
Other solutions that may be unlikely under a Conservative government include nationalisation possibilities and other government support, but it seems like considerable layoffs and monetary losses would occur in many of these outcomes.
Either way, with the only other obvious option being closure of the company (which would have a huge impact on the UK job market), the situation looks bleak for the industry and Tata’s own lack of faith in the Pound is likely to resonate even further with investors if the outcome is less than desirable.