- Pound Euro Exchange Rate Slips on Wednesday – Markets focus on Chilcot Report
- Markets Seek Out Safe Investments – Investors shaken by property fund suspensions
- Update: ECB Minutes Released – ECB wary of Brexit damage to Eurozone in early June
- Update: Round Two of Conservative Voting Ends – May or Leadsom to be UK PM
- Forecast: Bank of England Decision Next Week – Markets expect rate cut
Pound Euro Exchange Rate Ends Higher on Friday
The Pound Euro exchange rate looked to end the week’s European session above the key level of 1.17 as Friday drew to an end.
The US’ Non-Farm Payroll report appears to have done little to GBP/EUR, as Sterling’s relief rally continued against both the Euro and the US Dollar. At the time of writing, GBP/EUR trended in the region of 1.1750, up from the week’s lowest levels but still roughly 14 cents lower than before the UK’s EU referendum took place.
While it is still possible for Sterling to drop during the US session, the pair appears to have recovered from its worst levels of near 1.16.
Markets now look ahead to next Thursday, which is when the Bank of England (BoE) is set to make its first post-Brexit policy decision. Analysts speculate that there is a 78% chance of a cut to the key UK interest rate, which would bring the rate (currently at 0.50%) down to a new record low.
(Previously updated 14:54 08/07/2016)
Pound Euro Exchange Rate Hovers Above 1.17 as Relief Rally Continues
The Pound Euro exchange rate continued its recovery attempts on Friday after failing to advance much ground in its Wednesday and Thursday rallies amid constant Brexit jitters.
Quiet Eurozone sentiment allowed markets to focus on the Pound, with GBP/EUR trending in the region of 1.1725 at the time of writing.
News that Britain’s trade deficit had lightened further than expected in May appears to have slightly bolstered Sterling sentiment.
While the data was collected well before the Brexit result, a better-than-expected trade deficit balance could help to soften any post-Referendum damage.
This is especially vital after the Bank of England (BoE) recently stated that the current account is among the assets most at risk from a Brexit.
The BoE is due to deliver its first post-referendum interest rate decision next week and analysts are currently pricing in an over 70% chance of the central bank opting to cut interest rates.
If assessment proves accurate the Pound Euro exchange rate could slump to new lows in the not too distant future.
(Previously updated 11:40 08/07/2016)
Pound Euro Exchange Rate at 1.16 after UK Consumer Confidence
With the second round of the Conservative leadership contest ongoing throughout the day, Sterling took the relatively calm market as an opportunity to recover slightly on Thursday.
Investors sought the Pound from its cheapest levels after two days of declines. However, despite hitting a daily high of 1.1779, GBP/EUR ultimately struggled to remain above 1.17 and instead hovered in the region of 1.1685.
The suspension of yet more major property fund groups as well as news from NIESR that the UK economy had likely contracted in June prevented the currency from recovering too far.
This was despite news that UK Chancellor George Osborne had set out to make deals with US banks, with the aim of cooperating to keep London as one of the world’s top finance capitals, which briefly boosted the Pound in the middle of Thursday’s session.
Sterling remained at 1.16 on Friday after the GFK Consumer Confidence index printed at -9, down significantly from the previous figure of -1.
The dramatic drop in confidence directly reflects how significantly sentiment has been damaged by the UK’s decision to Brexit from the European Union.
(Previously updated 9:14 07/07/2016)
The Pound Euro exchange rate fluctuated narrowly during Wednesday’s session as Sterling’s attempts to recover from its Tuesday crash were largely wasted. Market movement was muted as attention turned towards the highly anticipated Chilcot Report.
While GBP/EUR recovered from its worst levels of 1.1628 during Wednesday’s European session, it was unable to near 1.1750 again and instead trended in the region of 1.1660 on Wednesday afternoon.
Before the UK’s EU referendum, analysts projected that the Pound Euro exchange rate could drop to parity by the end of the year if the nation opted to Brexit. Given that Sterling has already lost 15 cents, the Pound slumping to this level now seems likely.
Sterling (GBP) Movement Weak Amid Chilcot Report Debates
After plummeting due to Brexit-related market panic on Tuesday, the Pound’s movements were relatively muted on Wednesday as markets remained poised and the UK focused on the highly anticipated release of the Iraq Inquiry.
Also known as the Chilcot Inquiry or Chilcot Report (named after Chairman John Chilcot), the Inquiry is a comprehensive investigation into Britain’s role in the Iraq War. The investigation began in November 2009 and the final report was released on the 6th of July 2016.
While the report had little effect on forex markets, emerging details as well as statements from many involved politicians (including ex-Prime Minister Tony Blair) dominated headlines on Wednesday.
This seemingly distracted markets from Tuesday’s mixed news, which included the Bank of England’s (BoE) stability report as well as the suspension of major property fund withdrawals such as M&G Investments and Aviva Investors. Sterling dropped further on Wednesday evening as major property funds continued to suspend trading.
Sterling may have been strengthened slightly, however, by news that the Conservative Leadership contest was proceeding quickly and smoothly.
Tuesday’s round of MP voting took the initial five runners down to three, as Liam Fox was disqualified with the lowest number of votes and Stephen Crabb decided to step down due to his relatively low support. Both MPs decided to back frontrunner Theresa May following their withdrawal.
Euro (EUR) Sturdy Despite Dovish Growth Forecasts
The Euro held its ground against Sterling’s recovery attempts and gained slightly against other majors on Wednesday, as markets perceived the Euro to be a relatively safe currency compared to the unfavourable Pound.
Recent Eurozone data has been mixed, with Eurozone PMI indicating that growth had slowed considerably in late-June, and the Italian banking system appearing to be headed towards crisis.
Eurozone headlines have been hit in the last few days with the news that Italian banks are becoming dangerously loaded with bad debts, and the number of nonperforming loans has tripled since the 2008 financial crisis. The Financial Times reports;
‘Anxiety has spread from stock markets, where shares in the world’s oldest bank have fallen by more than a quarter this week to reach a record low, after the European Central Bank demanded it shed another €10bn in bad loans.
It comes as Matteo Renzi, the Italian prime minister, has begun to weigh whether to bypass new EU banking rules in order to bail out lenders using public funds. Under EU rules, such bailouts are now illegal unless creditors such as bond investors bear the brunt of a bank rescue.’
News that Markit Chief Economist Chris Williamson had estimated Q2 Eurozone GDP could be as low as 0.3% also weighed on the Euro, but despite this it remained relatively sturdy on Wednesday.
Pound Euro Exchange Rate Forecast: Conservative Leadership Contest Continues Today
After being whittled down from five to just three runners on Tuesday, Conservative MPs will return to Parliament for another round of voting during Thursday’s session.
The remaining candidates are frontrunner Theresa May, Andrea Leadsom and Michael Gove. With over 50% of the MP’s votes on Tuesday, May is widely predicted to be among the final two.
The final two will likely be known by Thursday night, at which point they will begin their campaigns to the full Conservative electorate.
Meanwhile in the Eurozone, the European Central Bank’s (ECB) latest meeting minutes are due for publication around midday.
However, as this meeting took place in early-June, it is unlikely that it will focus heavily on the effects of a Brexit on the economy, as markets were widely anticipating a ‘Remain’ result at this point in time. As a result, investor reactions to the minutes may be quiet.
Overall, the Pound is expected to remain pressured, especially if property funds continue to suspend withdrawals as some analysts have expected. The Euro could also drop soon as recent news catches up with it, meaning the Pound Euro exchange rate’s movement is likely to be volatile in the near future.