- GBP Flat Throughout Wednesday – Strong production data fails to inspire movement
- Trade Balance Updates Published – German and British trade data mixed
- GBP/EUR Gains on Thursday – German bond yields hold Euro down
- Update: Pound Falls on Friday – ‘Brexit’ concerns take hold
- Forecast: How Will ‘Brexit’ Bets Shift? – GBP/EUR continues to be dictated by Referendum rows
Pound (GBP) Falls on Friday
The Pound slipped closer to its weekly lows on Friday afternoon as investors continued to sell off the increasingly risky currency.
This was despite the day’s optimistic UK data. Construction output improved from -3.6% to 2.5% month-on-month, beating forecasts of 1.2%, while the yearly score lightened from -4.5% to -3.7%.
May’s consumer inflation expectation report was also solid, improving from 1.8% to 2.0% in May. However, with under two weeks until the key EU Referendum vote, ‘Brexit’ jitters began to take further hold of investor movements.
Despite a perceived slight shift towards ‘Remain’ bets in the past week, the closeness of polls as well as the recent fluctuations of the Pound have left Sterling increasingly unappealing to risk-off traders.
The Euro, on the other hand, remained sturdy on Friday as German CPI met preliminary results as expected. The pair was trending in the region of 1.2700 at the time of writing.
(Previously updated 16:56 9/06/16)
GBP/EUR Advances Slightly on Thursday
With the pair still fluctuating around the week’s opening levels, Friday’s session could be the deciding factor of whether or not GBP/EUR gains or falls this week.
The Pound to Euro exchange rate advanced around 0.4% on Thursday despite ‘Brexit’ concerns continuing to weigh on the volatile Pound. Positive trade data may have helped sentiment towards the Pound, but a weak Euro is more likely to have been the cause for GBP/EUR’s improvement.
According to Reuters, Germany’s 10-year bond yield plummeted on Thursday, shaking confidence in the Euro as some economists speculated that markets may attempt to bring bond yields below zero to hit record lows.
(Previously updated 15:56 9/06/16)
Pound Sterling Edges Higher Despite Record Deficit
Although the UK’s trade data revealed that the nation’s trade deficit with the EU hit a record high, the Pound Sterling to Euro (GBP/EUR) exchange rate was able to trim previous losses and return to trending around the day’s opening levels.
Overall, the UK’s trade deficit narrowed but one economist noted: ‘Despite the narrowing in the UK’s trade deficit for April, net trade is still not providing much support to the economy.’
GBP/EUR achieved a high of 1.2767
Tomorrow’s UK construction output report could have an impact on Pound Sterling to Euro (GBP/EUR) exchange rate trading. As it stands, analysts are forecasting a month-on-month increase in output of 1.2%, which would result in an annual figure of -4.9%. Better than expected results could give Sterling a little lift.
The Bank of England (BoE) is also set to publish its 12-month inflation predictions. A figure lower than the last estimate of 1.8% could limit demand for the Pound.
(Previously updated 08:30 09/06/2016)
The GBP/EUR exchange rate fluctuated throughout Wednesday’s session as quiet Eurozone data failed to counteract the impact of uncertainty.
GBP/EUR recovered to 1.2853 during Tuesday’s session, the high point of the week thus far. Since then however, the pair has slipped slightly closer to the week’s opening levels. On Wednesday afternoon, GBP/EUR fluctuated in the region of 1.2780.
While Thursday’s UK trade data is likely to have an impact on Pound to Euro exchange rate trading, movement may be limited with EU referendum concerns being a more significant driver of GBP demand than UK ecostats.
GBP Flat Despite Positive Production Data
Sterling’s movement throughout Wednesday’s trade session was relatively uninspired, with the currency seemingly reeling from its bearish Monday and its bullish Tuesday. As a result, the volatile currency allowed itself to be influenced by cross-flows in currency trade.
The Pound initially plummeted on Monday as new EU Referendum web polls revealed increased support for a ‘Brexit’, but recovered past the week’s opening levels on Tuesday after a phone poll showed that ‘Remain’ still had solid backing.
Wednesday’s session saw the release of relatively influential UK data, including industrial production and manufacturing production reports.
While all scores were expected to worsen, they instead reported healthy improvements. Industrial production improved from 0.3% to 2.0% month-on-month despite being predicted to worsen to 0.1%. The yearly figure escaped negative territory of -0.2% to score 1.6%, avoiding a drop to -0.3%.
The manufacturing production report impressed further. Despite being expected to remain stagnant, manufacturing instead improved 2.3% in April. The figure improved from a huge contraction of -1.9% to 0.8% year-on-year. As reported by Bloomberg;
‘The main driver behind manufacturing in April was the pharmaceuticals sector, where output rose 8.6 percent — the largest increase since February 2014 — mainly on exports. Domestic sales boosted car production, lifting output of transport equipment by 4.7 percent. Overall, 10 out of 13 manufacturing sectors increased production in April.’
Despite the optimistic report however, the Pound saw no inspired movement with markets focused entirely on ‘Brexit’ discussions. Investors also largely ignored NIESR’s latest GDP estimate, which improved from 0.3% to 0.5%.
Euro (EUR) Keeps the Pressure on GBP
Part of the reason Sterling was not able to advance was due to a strengthening Euro. While the Euro was not able to advance significantly on Wednesday due to a lack of data, sentiment towards the shared currency was relatively solid as it continued to outperform the US Dollar.
However, with GBP’s upcoming movements largely uncertain, investors hesitated to sell it in favour of EUR due to the possibility of upcoming fluctuations.
The Euro had previously advanced due to other major currencies like the US Dollar and the Japanese Yen becoming increasingly unappealing.
The US Dollar struggled as Fed rate hike bets plummeted, while the Yen was jawboned by Japanese officials, leaving the Euro in a comparatively favourable situation.
Tuesday’s session may also have bolstered sentiment towards the Euro. While the shared currency failed to hold its ground against a bullish British currency on Tuesday, optimistic Eurozone growth data may have garnered some attention.
The Eurozone’s final Q1 Gross Domestic Product (GDP) report was largely expected to match preliminary results released in May. However, results beat expectations.
The quarter-on-quarter GDP score improved from the predicted 0.5% to 0.6%. The year-on-year print beat expectations of 1.5% by scoring 1.7%.
While these figures did little for the Euro on Tuesday, they may have assisted the Euro’s attempts to advance throughout Wednesday.
Sterling to Euro (GBP/EUR) Exchange Rate Forecast: UK Trade Deficit Update Due
While any shift in ‘Brexit’ debates would be more likely to dictate upcoming movements in the GBP/EUR exchange rate, a relatively quiet day for EU Referendum headlines could see the pair instead move on upcoming trade data instead.
April updates to Britain’s trade deficit figures are due for release on Thursday morning. Analysts currently expect the total trade deficit to lighten slightly from -£3.83b to -£3.55b.
The goods trade deficit is expected to see an even more slight improvement, with many analysts expecting it to remain around -£11.2b. A worsening in these scores could weigh on the British currency as well as reveal that the deficit once again failed to meet Treasury targets.
German trade data is also expected to be released, including the German trade surplus and export and import figures. The reports will be released alongside German labour costs from Q1.
However, as always the GBP/EUR exchange rate is more likely to move in relation to ‘Brexit’ bets as Thursday will see the EU referendum only a fortnight away.
If the ‘Remain’ camp strengthens the pair could soar, but if a ‘Brexit’ is perceived as being more likely the pair may plummet again. If little shift in sentiment reveals itself, the increasingly volatile GBP could instead fluctuate aimlessly.