- Pound Euro Exchange Rate Forecast to Remain Below 1.20– Sterling pressure to continue
- Friday’s PMIs Indicate Brexit Damage to UK Economy– But Eurozone remains resilient
- Forecast: UK Preliminary Q2 Growth on Wednesday– Eurozone’s on Friday
- Forecast: Eurozone Unemployment Ahead– Will Eurozone employment remain upbeat?
Pound Euro Exchange Rate Forecast to Trade Flatly Until Wednesday
The Pound Euro exchange rate once again gave up its recovery attempts on Monday, slumping to around 1.1950 from a daily high of 1.1994 in response to a grim manufacturing report from CBI.
Following Friday’s underwhelming PMI scores, Brexit concerns remained high on Monday as CBI business optimism plummeted to 2009 levels of -47. The report indicated that the Brexit had indeed caused UK manufacturing optimism to plummet in July.
The Euro, on the other hand, remained sturdy as Eurozone news continued to score above expectations. A German business optimism report published by IFO was expected to have low scores following the Brexit, but investors were relatively impressed by the resilient and healthy results.
Sterling may attempt its recovery attempts on Tuesday, but it is unlikely to make a considerable recovery ahead of Wednesday’s session – which sees the release of UK Q2 growth scores as well as a German consumer confidence report from GfK.
(Previously updated 10:25 BST 25/07/2016)
Friday’s preliminary July PMI figures have put a heavy weight on the future Pound Euro exchange rate forecast. After the release of the report, Sterling plummeted across the board by a fairly significant amount, while the Euro advanced on surprisingly optimistic scores.
GBP/EUR was trending near a July high of 1.2038 on Friday morning, before the release of the PMI reports. However, after the economic figures were published, the pair quickly lost over a cent. GBP/EUR was trending in the region of 1.1880 on Friday afternoon.
This week’s Pound Euro exchange rate forecast will depend on a number of factors, including the latest Brexit-related developments and the results of the UK’s main economic reports, including second quarter growth and the GfK Consumer Confidence index.
If the UK’s latest growth reports reveal a concerning slump in output than the Pound is likely to decline against the majority of its most-traded currency counterparts, including the Euro.
Given last week’s PMI results, a drop in growth is extremely likely. However, economists have predicted that the quarter-on-quarter result will come in at 0.5%, up from 0.4%, while the annual figure prints at 2.1% (an improvement on the first quarters’ annual result of 2.0%).
Pound (GBP) Throttled as Brexit Fears Confirmed
After a week of mixed sentiment as the Pound fluctuated up and down on the latest Brexit news and economic data, Sterling ended the week with a plummet in response to the first post-Brexit PMI reports.
Anticipated throughout the week, Markit’s preliminary July PMI figures came in even worse than the already bearish forecasts predicted.
For some economists, this report was the first real indication that the UK’s decision to leave the European Union had had a negative effect on the nation’s economy.
All major sectors in the report printed contractions, with Manufacturing falling from 52.1 to 49.1, Services slumping from 52.3 to 46.4, and the overall Composite print plunging from 52.4 to 47.7.
In what is being called a ‘dramatic deterioration’ of UK economic activity, July’s early figures suggest a drop in the UK economy not seen since the 00s financial crisis. According to Markit Chief Economist Chris Williamson;
‘At this level, the survey is signalling a 0.4% contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir. Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least.’
Euro (EUR) Boosted as Brexit Fears Relieved
In something of an opposite story to the Pound, the Euro saw considerable relief on Friday as the Eurozone’s own preliminary PMIs, while not all thoroughly healthy, came in above expectations.
Analysts had been scattered on their views of how badly the Brexit vote would effect the Eurozone’s economy, with some suggesting the bloc would suffer even more than Britain.
Germany saw a slip in Manufacturing to 53.7, while Services improved from 53.7 to 54.6 and the Composite figure came in at 55.3.
The general Eurozone figures were also solid despite Brexit concerns. Manufacturing fell from 52.8 to 51.9, Services slipped slightly from 52.8 to 52.7, and Composite PMI came in at 52.9, only 0.2 points down from the previous figure of 53.1.
Markit Chief Economist Williamson’s comments on the findings took a hawkish tone, highlighting that the Eurozone had been more resilient than expected to the Brexit’s potential damage;
‘The eurozone economy showed surprising resilience in the face of the UK’s vote to leave the EU and another terrorist attack in France.
The overall rate of economic growth is largely unchanged, suggesting GDP is growing at a sluggish but reasonably steady annual rate of around 1.5%.
It’s especially encouraging to see employment growth continuing to improve, with firms’ appetite to hire seemingly so far unaffected by the uncertainty caused by the Brexit vote, especially in Germany.’
Pound Euro Exchange Rate Forecast: Q2 Growth Figures Ahead
Sterling could be a little more weighed down in the coming week. With investors now somewhat vindicated in their Brexit concerns, the overall tone of UK markets will likely be one of ongoing concern.
UK investors will have their sights set on Britain’s preliminary Q2 Gross Domestic Product (GDP) report next. Set for publication on Wednesday, the report will be the next solid indication on the health of Britain’s growth from April through June.
Many analysts had expected for Britain’s economic growth to slow considerably in June, or even near stagnation. However, it is possible that April’s solid growth could boost the score.
A better-than-expected figure would potentially soften the blow of any Q3 economic contractions, and lessen the fears of a serious recession. However, worse-than-expected scores would have the opposite effect and cause Sterling to plummet.
The Eurozone’s own preliminary Q2 GDP figures will be released on Friday. While strong figures are not expected, investors hope that it will continue the trend of indicating that the Eurozone has remained resilient towards Brexit damage.
Another one for Euro investors to watch will be the Eurozone’s June unemployment report. As Chris Williamson stated in Markit’s Eurozone PMI report, employment in the bloc has been promising lately, giving investors hope for solid employment data.
As a result, a heavily pressured Sterling is the main thing to expect with the coming week’s Pound Euro exchange rate forecast.