GBP/EUR Drops on Poor UK Data
- GBP/EUR Slips From 1.32 – Poor UK data dents bullish sentiment
- Euro (EUR) Still Uninspired on Poor Data – Eurozone economic sentiment down
- German Data Impresses – Includes consumer confidence and IFO reports
- Update: UK GDP Data Falls Short – Q1 GDP misses annual forecast
- Forecast: UK Consumer Confidence Expected – Pound likely to remain sturdy until weekend
The Pound to Euro exchange rate slipped closer to 1.31 on Thursday afternoon as investors reacted to the day’s poor UK news, which included Gross Domestic Product (GDP) as reported earlier.
Other figures holding the Pound down included the BBA’s latest loans for house purchase report, which dropped from 43,854 to 40,104 despite being expected to improve to 44,700.
Lastly, a surprising drop in business investments in Q1 may have dampened Sterling sentiment. Business investment fell from 3.0% to -0.4% year-on-year.
The Euro, on the other hand, was boosted slightly by a ‘breakthrough’ deal between Greece and the Eurozone regarding Greece’s debt relief. The deal is considered to be a compromise between the differing stances of Germany and the International Monetary Fund (IMF), but the deal was welcomed by markets regardless.
(Previously updated at 14:40 on 26/05/2016)
GBP/EUR Fails to Hold 1.32 After GDP Data
The Pound Sterling to Euro (GBP/EUR) exchange rate fell back below the 1.32 level on Thursday ahead of the release of the UK’s Q1 GDP report.
With the rate of year-on-year expansion coming in slightly below the estimated level of 2.1% (hitting 2.0% in the first three months of the year) the Pound extended losses across the board.
In the opinion of one industry expert;
‘The weaker annual growth rate (2%) is further confirmation of the Brexit related negativity already embedded in the wider economy and aside from recent retail sales, continues a poor run of UK economic indicators.’
The GBP/EUR currency pair recorded losses of over 0.2% and hit a low of 1.3123 before recovering to trade in the region of 1.3146.
Before the weekend further GBP/EUR volatility could be inspired by Germany’s Retail Sales report for April.
The UK’s Consumer Confidence figure could also have an impact on GBP demand.
The sentiment gauge is predicted to have worsened from -3 to -4 in May.
(Previously updated at 17:05 on 25/05/2016)
The Pound Sterling to Euro (GBP/EUR) exchange rate climbed to a new three-month-high during Tuesday’s session as ‘Brexit’ bets dropped once again and uninspiring Eurozone data left the Euro defenceless.
GBP/EUR soared sharply after previously hovering around the week’s opening levels of 1.2924. The pair gained around 150 pips during Tuesday’s session to trend in the region of 1.3082 before advancing beyond the 1.31 level on Wednesday.
As trading progressed the pairing briefly rallied as high as 1.3218.
The Pound’s gains came in spite of Germany publishing better-than-forecast consumer confidence data. The GfK Confidence Index increased from 9.7 to 9.8 despite predictions for no change.
Germany’s IFO measures of Business Climate, Current Assessment and Expectations all printed above forecast levels, with the expectations gauge for May showing a substantial improvement from 100.4 to 106.6.
President of the IFO Institute Clemens Fuest observed: ‘Companies are significantly more satisfied with their current business situation. In addition, they are noticeably more optimistic with regard to the coming months. The German economy is growing at a robust pace.’
Meanwhile, bets that the UK would vote to remain in the European Union were supported by a warning from top credit rating agency S&P.
According to S&P Global Ratings: ‘A UK departure from the EU could put sterling’s reserve status at risk by deterring foreign direct investment and other capital inflows,” London-based analyst Frank Gill wrote. “Sovereigns controlling a reserve currency benefit from extensive external and monetary flexibility, which supports government creditworthiness.’
However, the uptrend enjoyed by the Pound this week could be sharply reversed on Thursday if the UK’s first quarter growth data details a concerning slowing in output.
As it stands the UK is forecast to post quarterly growth of 0.4% and annual expansion of 2.1%.
If the results fail to match up with expectations Sterling could be pressured lower.
Pound (GBP) Climbs Despite Volatility as ‘Brexit’ Bets Fall
Following a relatively quiet Monday, the Pound leapt across the board on Tuesday despite mixed UK data.
PSNCR’s public finances report came in at a surprisingly low -2.4b, falling from 17.8b. The UK Treasury also notably missed its borrowing targets as the public sector net borrowing score let down forecasts of 5.8b by worsening from 6.1b to 6.6b.
Regardless, Sterling appeal was not muted by this news as investors focused instead on the latest ‘Brexit’ rows, with the EU referendum vote now just a month away.
A new ORB poll published by The Telegraph revealed that a stronger number of men, over-65s and Tory supporters now back the ‘Remain’ campaign. This change is significant as a March poll indicated that 60% of Tory supporters intended to vote ‘Leave’.
As the Pound would face considerable uncertainty in the event of a ‘Brexit’, currency investors typically react bullishly towards news that the UK is likely to remain in the EU.
Other news from Britain yesterday included a debate between Bank of England (BoE) policymakers and the Treasury Select Committee (TSC) in UK Parliament. BoE Governor Mark Carney addressed critics who claimed he was biased towards the ‘Remain’ campaign, The Guardian reports.
‘In heated exchanges at a parliamentary select committee on Tuesday, Carney told MPs the BoE had a responsibility to the British people “who don’t want risks kept from them”.
The governor rebutted criticism from pro-Brexit Tory MPs Jacob Rees-Mogg and Steve Baker that the bank was wrong to pass judgment on the economic impact of leaving the EU.’
Euro (EUR) Loses Ground After ZEW Reports Drop in Economic Sentiment
The Pound was able to easily gain against the Euro on Tuesday as fresh Eurozone data left the shared currency with little reason to maintain its strength.
Starting off Tuesday’s session were Germany’s final Q1 Gross Domestic Product (GDP) reports, which initially bolstered the Euro’s defences slightly by printing as expected. The quarter-on-quarter score hit 0.7%, while the year-on-year figure printed at 1.6%.
However, this data did little to stave off the Pound’s strength, and Euro sentiment was even worse later in the morning after ZEW released its latest economic sentiment surveys.
According to ZEW’s May reports, the view of the current economic situation in Germany improved past forecasts of 49.0, from 47.7 to 53.1. Unfortunately, German economic sentiment almost halved from 11.2 to 6.4, despite being predicted to improve to 12.0.
Eurozone economic sentiment also plummeted, from 21.5 to 16.8.
The Euro is also likely to have been weakened by news that risks to Eurozone financial stability had worsened since 2015. According to Reuters, the European Central Bank’s (ECB) latest Financial Stability Review (FSR) claimed that market turmoil, weak profits and debt amongst other factors had increasingly shaken financial stability in the last six months and could cause issues going forward.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Slew of German Data on Wednesday
The Euro could see its defences bolstered on Wednesday if German data due in the morning prints above expectations.
GfK is set to release its June German consumer confidence report first thing, which is currently expected to remain at 9.7.
This will be followed by a May report from IFO, detailing German business climate, current assessment and expectations. These figures are estimated to improve slightly, so worse-than-expected scores will greatly decrease the Euro’s chances of recovering from its lows.
Comparatively, the Pound will likely continue to move on ‘Brexit’ bets, as debates on the EU referendum rage on this week. If the ‘Leave’ campaign presents a new series of strong arguments, Sterling will certainly feel pressure and could also easily experience a session of profit-taking following its new highs.
British data will remain quiet until Thursday’s preliminary Q1 Gross Domestic Product (GDP) report, which releases alongside BBA’s latest loans for house purchase data.