- Pound Euro Exchange Rate Hits 1.1650– Brexit-inspired downtrend continues
- Bank of England Says Fears Have Been Borne Out – Hints at easing next week
- Forecast: Conservative Leadership Contest Round 2 – Who will be out by Friday?
- Forecast: Eurozone Growth Slows Ahead of Brexit Vote – Q2 GDP could be half Q1
Pound Euro Exchange Rate Buoyed Slightly on Thursday
The Pound Euro exchange rate attempted to recover for much of Thursday’s session, briefly hitting a daily high of 1.1779 as investors moved to buy the cheap Pound from its lowest levels.
However, Brexit jitters remained throughout the day and the pair ultimately struggled to remain above 1.17. At the time of writing, GBP/EUR trended in the region of 1.1680.
Property fund companies continued to suspend trading throughout the day, but the primary cause for Sterling’s difficulty to recover was likely NIESR’s latest growth forecast.
According to NIESR, the UK economy contracted in June, and is likely to worsen further from July onwards due to the market-shocking Brexit result.
(Previously updated 16:31 06/07/2016)
Pound Euro Exchange Rate Plunges Lower on Wednesday
The Pound Euro exchange rate was unable to keep its levels above 1.17 by Wednesday evening, as the pair dropped down to trend in the region of 1.1650.
Brexit panic took hold of UK markets once again throughout Tuesday and Wednesday as various property fund companies suspended withdrawals in order to prevent panic-caused losses.
Thus far, five major groups have suspended withdrawals this week alone, and analysts predict more will go. The latest groups to suspend trading have been Henderson and Columbia Threadneedle.
As a result of investors’ property fund assets being currently out of reach, other UK assets such as the Pound itself have plummeted as investors move to protect their assets from losses.
(Previously updated 14:22 06/07/2016)
The Pound Euro exchange rate trended flatly on Monday before plummeting on Tuesday, extending its Brexit-influenced decline over a week after the unexpected decision to break away from the European Union saw financial markets plunged into chaos.
While GBP/EUR trended narrowly in the region of 1.19 when markets opened this week, it lost over -1.60% during Tuesday’s session alone, plummeting past 1.18 towards 1.17. On Tuesday afternoon, the pair trended in the region of 1.1720.
To put this in perspective, the Pound Euro exchange rate advanced to a high of 1.31 just before the result of the EU referendum was announced, making for a 14 cent decline since the UK opted to Brexit. The Pound has also fallen to its lowest levels against the US Dollar since the 1980’s.
Other notable Sterling declines recorded in the wake of the UK’s decision to Brexit include the currency falling to 1.73 against the Australian Dollar and 1.8110 against the New Zealand Dollar.
Pound Sterling (GBP) Plummets as BoE Confirms Market Fears about Brexit Impact
Letting down hopes of continued attempts at a relief rally, the Pound quickly lost its footing on Tuesday as investors readjusted their positions ahead of the Bank of England (BoE) stability report.
The report came out and did little to ease market fears, with BoE Governor Mark Carney stating in a following speech that the Brexit fallout had thus far ‘borne out’ the bank’s previous warnings about the risks of a Brexit.
However, not all the news was bad for banks, as Carney confirmed that banking rules would be eased, allowing banks to lend more easily in order to stimulate the economy further. Reuters reports;
‘The central bank said it would lower the amount of capital banks are required to hold in reserve, freeing up an extra 150 billion pounds for lending in a reversal of a decision it took earlier this year, when it started tightening screws on lenders because Britain’s economy appeared on course for more growth.
BoE Governor Mark Carney said the move represented a “major change” that would help the economy to weather the Brexit hit.’
This news boosted the Pound slightly and saw it attempt to recover, but its losses were ultimately extended thanks to the expectation in markets that the BoE would be introducing easing and stimulus at next week’s BoE policy meeting.
Meanwhile, the Conservative leadership contest was well underway, with MPs due to hold a secret ballot to reduce the five runners to four. Currently, the favourites to win are Home Secretary Theresa May, newcomer Andrea Leadsom and ‘Leave’-supporting MP Michael Gove.
Euro (EUR) Weak on Slowed Eurozone Growth Forecasts
Since the EU referendum, the Euro has had a tendency to be dragged lower by Sterling’s Brexit-related bearishness as markets grow anxious about how the development may increase Eurosceptic behaviour – and the chance of a Eurozone fallout.
However, the shared currency actually performed solidly on Tuesday, gaining against some majors due to investors moving from the Pound to the Euro as one of the strongest movers of the day.
Despite this, the Eurozone’s latest economic news was not positive. As Brexit worries remained high and Italian banks look to incite a fresh political crisis, Eurozone retail sales let down expectations by printing at 1.6% rather than the expected 1.7% year-on-year.
What is perhaps even worse is news that the Eurozone’s Q2 Gross Domestic Product (GDP) is expected to worsen to around 0.3%.
While this would take into account the Brexit fallout in the last week of June, Q3’s growth could be even worse as the Brexit vote begins to influence business decisions negatively from July onwards. According to Markit Chief Economist, Chris Williamson;
‘The survey is signalling GDP growth of just 0.3%, similar to the sluggish trend recorded over the past year. The data suggest that the strong upturn seen in the official GDP data at the start of the year will have overstated the underlying health of the economy, and that growth will have slowed in the second quarter.
The lack of any sign that the upturn is picking up speed will worry policymakers, especially as ‘Brexit’ uncertainty looks likely to subdue growth in coming months. All of the manufacturing responses and 90% of the service sector replies for June were received prior to the UK’s EU referendum result, so any potential ‘Brexit’ impact is yet to appear.’
Pound Euro Exchange Rate Forecast: Another Long Drop for Sterling?
It seems that every time the Pound appears to be all plummeted out, it extends its losses with yet another selloff from markets. With the Pound Euro exchange rate now in the region of 1.17, will its slide continue?
With this week’s BoE news now out of the way, the Pound may settle again later this week and see investors buying it from its lows, but due to the Pound’s regular dips and volatility, investors may instead choose to invest in safer British assets such as Gilt-yields.
The Eurozone sees the release of more PMI data on Wednesday morning, but with the Composite report already released and Q2 forecasts bearish, they may not influence Euro movement much. The Euro may also drop on Tuesday’s poor Eurozone news as it spent much of the day in a relief rally.
Going forward, markets will likely continue to focus on Britain’s ongoing uncertainties. The Conservative leadership contest – which will decide the next Prime Minister – will be whittled down to three candidates or less by Friday.
This, as well as a handful of other uncertainties like next week’s BoE policy meeting and Labour’s ongoing leadership issues, are likely to leave the Pound Euro exchange rate easily pressured.