GBP/EUR Fluctuates as Pound Investors get ‘Brexit’ Jitters
- Pound Rally Slows after ECB Minutes – Sterling previously bullish on good retail sales
- ECB Urge EU Politicians for Assistance – Policymakers claim ECB is not currently planning cuts
- Update: BoE Policymaker Issues Warning – ‘Brexit’ jitters return
- Update: Preliminary Eurozone PMI Next Week – Mixed results leave Euro uninspired
- Forecast: German GDP on Tuesday – British GDP due on Thursday
The Pound to Euro exchange rate fluctuated on Monday as investors reacted to the fact that the EU referendum is now just a month away.
While the ‘Remain’ campaign appeared to have a lead according to recent polls (which subsequently boosted the Pound), investors have become wary on Sterling again. According to a report from Bloomberg, Pound volatility soared on Monday.
However, the Euro also failed to advance as May’s preliminary PMI prints were mixed. German Composite PMI exceeded expectations of 53.9 by improving from 53.6 to 54.7. Eurozone Composite PMI, on the other hand, worsened from 53.0 to 52.9, letting down expectations of improving to 53.2.
(Previously updated at 9:10 on 23/05/2016)
GBP/EUR Slumps as BoE Becomes Dovish, ECB Urges Markets to be Patient
The Pound to Euro exchange rate slipped down further from its three-month-high on Friday as investors indulged in profit-taking and reacted to the latest statements from central bank policymakers.
According to Gertjan Vlieghe, the Bank of England (BoE) may be forced to introduce easing if the UK’s economy does not recover noticeably after June’s EU referendum – even if Britain votes to ‘Remain’.
On the other hand, European Central Bank (ECB) policymaker Benoit Coeure has claimed that the ECB are not currently planning further easing measures and asked markets to be patient with current monetary policies – a sentiment reflected by other ECB members throughout Friday.
At the time of writing, GBP/EUR was down around -0.6% on Friday’s opening levels, in the region of 1.2955. The pair has sustained a gain of around 250 pips throughout the week.
With UK data fairly limited for much of next week ecostats from the Eurozone and the latest Brexit reports are likely to be the main causes of Pound Sterling to Euro (GBP/EUR) exchange rate movement.
On Monday the Eurozone is set to publish preliminary Manufacturing and Services PMIs for May. Positive results could boost the Euro while any signs of slowing output may see the Pound rally against its European peer.
The Pound Sterling to Euro (GBP/EUR) exchange rate followed up a bullish Wednesday by continuing its rally on Thursday due to optimistic UK retail sales. However, the rally eased as the latest ECB minutes were not as dovish as feared.
After gaining over 60 pips and hitting a three-month-high of 1.3068 on Thursday morning, GBP/EUR dipped slightly. At the time of writing, it trended around 0.2% up in the region of 1.3020.
Whether or not the currency pair is able to advance beyond the 1.30 level next week largely depends on Eurozone PMI data and UK growth figures.
However, given that next week’s UK economic calendar is relatively sparse, Brexit bets may remain a significant cause of Sterling movement.
More indications that the ‘Remain’ camp is pulling ahead could drive the Pound to fresh multi-month highs.
Pound (GBP) Remains Sturdy after Bullish Streak
GBP/EUR remains well up on the week’s opening levels after the Pound sustained considerable gains on Wednesday, followed by a modest gain on Thursday.
Sterling’s Wednesday strength was inspired by new ‘Brexit’ poll results that revealed a lead of 18 points for the ‘Remain’ campaign. The Ipsos MORI-published poll indicated that 55% of those asked would vote ‘Remain’, while 37% would vote ‘Leave’.
This was accompanied throughout the day by other news indicating a strengthening ‘Remain’ campaign. This included news that YouGov’s poll results may have been previously skewed towards ‘Leave’.
Alongside new poll results that put ‘Remain’ four points ahead, YouGov stated in a press-release;
‘We have made a slight change in our methodology since our previous poll. While our polls at the Scottish, Welsh, and London elections were generally very accurate, one consistent flaw was that we had UKIP too high.
This error appears to be related to the switch from weighting by party ID to weighting by past vote.’
The Pound’s rally was extended throughout Thursday after April’s retail sales reports came in well above expectations. Monthly figures beat expectations of 0.7% by rising from -0.7% to 1.5%, while the yearly print improved from 2.6% to 4.2% rather than slipping to 2.0% as predicted.
Euro (EUR) Strengthens but Still Flat after ECB Minutes
Rather than the Euro rallying or falling following the release of the European Central Bank’s (ECB) latest meeting minutes, the shared currency instead bolstered its defences, managing to slow the Pound’s uptrend.
The ECB’s minutes for its April meeting focused more on the assistance required from individual European nations and their politicians than on monetary policy.
However, while the minutes did not hint at further easing they were not particularly hawkish either, according to The Telegraph,
‘The central bank elected to keep its monetary policy stance unchanged last month. The decision was made despite low inflation expectations, described as “worrisome”, given that they remained as such even after a rebound in oil prices.
Some members suggested that low inflation had become entrenched, as weak price growth might have second-round effects for increases of wages and other prices. Mr Vistesen said that the ECB’s minutes made clear that “interest rates will remain very low for an extended period”, and well beyond the end of the central bank’s quantitative easing scheme.’
Light Eurozone construction output also weighed on the Euro on Thursday, dropping from -0.6% to -0.9% month-on-month with a huge drop from 3.4% to -0.5% year-on-year.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Light Trade Likely Through Friday
The Pound to Euro exchange rate could run flatly throughout Friday’s session and end the week in the region of 1.3000 as Friday’s data is set to be relatively light.
Most notable is Germany’s April Producer Price Index report, which is expected to improve slightly in both monthly and yearly prints. This will be followed by Eurozone current account data.
Later on, CBI is due to release its May UK trends report, though this is unlikely to influence Sterling movement.
Next Monday is more likely to inspire Euro movement, with preliminary Markit PMI results being posted throughout the morning, followed by UK consumer confidence. Until then, GBP/EUR will likely move as investors continue to readjust on ‘Brexit’ bets and ECB concerns.