The GBP EUR exchange rate was unable to recover from its worst levels on Friday, reaching new post-Brexit lows as Sterling sentiment plunged following last week’s BoE stimulus measures and amid high bets of further BoE easing in coming months.
UK data has also done little to support the Pound in recent days, with the latest housing report adding to concerns surrounding the slowdown in the UK economy since the nation voted to Brexit from the European Union.
- GBP EUR Exchange Rate Fluctuates on Thursday – UK house prices weigh on Pound
- Brexit Uncertainty Could Hit Germany – New study indicates German companies could be hit
- Update: UK Construction Less than Impressive – Post-Brexit figures likely to be worse
- Update: Key Eurozone Growth Meets Expectations – As does final July German CPI
- Forecast: GBP/EUR Unlikely to Recover – UK consumer prices could keep pressure high
GBP EUR Exchange Rate Extends 2016 Worst on Friday
The Pound to Euro exchange rate slipped well below the key level of 1.16 during Friday’s session, trending widely in the region of 1.1580 as the week drew to an end.
With Sterling becoming increasingly low-yield, the currency’s recovery attempts could become more rare in the coming weeks, with some analysts making particularly bearish forecasts of parity with the Euro in 2017.
Friday’s movement was largely caused by the Eurozone’s Q2 growth figures. While Italian and French economies stagnated between April and June, Germany’s expanded further than expected, causing the Eurozone to grow by 0.3% as expected throughout the quarter.
News that Eurozone industrial production had returned to growth, as well as another selloff of the US Dollar also bolstered the shared currency throughout the day.
Markets are likely to focus on Britain’s July Consumer Price Index (CPI) next week, which will be released on Tuesday. The report will give the first real indication of how UK inflation has reacted to Britain’s Brexit vote.
(Previously updated 11:59 12/08/2016)
GBP/EUR has lost over a cent and a half throughout the week so far, falling from the week’s opening levels of 1.1796. A recovery to above 1.17 before the end of the week is highly unlikely at this point, as the pair has hit a near three-year-low of 1.1614 – a low not seen since August 2013.
UK Construction Sector Struggles, Pound Euro Exchange Rate Holds Losses
The Pound Euro exchange rate held losses on Friday as the UK’s Construction Output report confirmed that the sector was struggling in June, ahead of the UK’s vote to Brexit.
Output fell -0.9% on the month and was down -2.2% on the year.
After the data was published the GBP EUR exchange rate was left trending in the region of 1.1613.
The pairing was little changed following the publication of comparatively positive industrial production data and on-forecast GDP figures for the currency bloc.
The Eurozone economy was estimated to have expanded by 0.3% on the quarter and 1.6% on the year in the second quarter.
(Previously updated 08:00 GMT)
Pound (GBP) Downtrend Continues Amid Dovish Markets
Thursday’s session gave the Sterling little in the way of solid ground to stand on, nor any boost to its recovery attempts. Instead, the currency continued to plunge lower, meaning it has dropped nearly non-stop in the week since the Bank of England’s (BoE) policy decisions last Thursday.
A house price balance report from RICS disappointed investors on Thursday morning, with June’s score being revised down to 15% and July’s score coming in at a low 5%. While not a heavily influential figure, it did continue the recent trend of grim post-Brexit economic news.
Market sentiment was considerably low as the final day of the week drew near, with more negative forecasts for the short to long term of the British economy weighing on Sterling appeal.
Poll results published by Reuters on Thursday afternoon indicated that economists believed that the UK’s economy was already entering a mild recession;
‘Ahead of the June 23 Brexit vote, economists had predicted growth would continue close to the 0.6 percent achieved in the second quarter, but median forecasts in the latest Reuters poll showed the economy would contract 0.1 percent this quarter and next.
If correct, that would meet the technical definition of recession. Britain’s economy would then return to only modest growth next year, the poll of nearly 60 economists taken this week found.’
The poll also found that economists believe the BoE will cut UK interest rates to 0.1% in November. This consensus weighed heavily on Sterling on Thursday evening, allowing the Euro to advance.
Euro (EUR) Holds Ground Despite Economic Anxiety
While recent data has indicated that the Eurozone’s economy has largely weathered the worst effects of Brexit panic, markets have begun to look back towards the Eurozone’s old domestic issues again in the last couple of weeks.
The bloc’s July PMIs came in above expectations, but there is still considerable concern about the nation’s individual economies, as well as new worries about how the Brexit could affect Germany specifically.
A Thursday report from Reuters revealed that most economists believe that the European Central Bank (ECB) is running out of room for monetary easing.
This concern was reflected by some economists at the International Monetary Fund (IMF) according to MarketWatch;
‘Economists at the International Monetary Fund are urging the European Central Bank to stop yanking interest rates further into negative territory, warning it will take a toll on the region’s already struggling banks and reduce lending to businesses and households.
In a blog post on the IMF website, economists Andy Jobst and Huidan Lin say any additional cuts that would push rates further below zero will encounter diminishing returns and threaten, at this point, to do more harm than good.’
Following a recent strong streak from the Euro, demand for the currency softened on Thursday as investors grew anxious towards the Eurozone bloc’s economy once more, awaiting Friday data.
GBP EUR Exchange Rate Forecast: Eurozone Growth Figures Ahead
Friday looks to be a bumper session for the Euro, with a slew of influential Eurozone stats due for publication in the morning.
The lone British construction reports for June are unlikely to cause much Sterling movement, as markets are already aware of Britain’s domestic construction issues meaning this data collected before the EU Referendum will have little insight on construction since the Brexit vote.
Sterling still has a chance to recover slightly however, depending on the strength of vital Eurozone inflation and growth reports.
Final German Consumer Price Index (CPI) figures will be immediately influential if they fail to meet preliminary scores. German inflation came in at 0.3% for July in a preliminary report.
Besides that, a slew of preliminary Q2 Gross Domestic Product (GDP) figures from multiple Eurozone regions as well as the Eurozone as a whole could cause big Euro movement.
If these figures come in above expectations, it will heavily increase hopes that Eurozone growth was on the mend and serve as good news for the ECB.
However, markets expect less optimistic scores which would likely cause ECB easing speculation to rise ahead of the bank’s September meeting.
This scenario would cause Sterling to recover some of its weekly losses, making it essential to next week’s GBP EUR exchange rate forecast.