- Polls indicating increased ‘Brexit’ support weighed on Pound – Investors inclined to reprice odds of ‘Leave’ victory
- Chances of June Fed rate hike eliminated – Euro boosted as US Dollar slumped
- Pound exchange rates trended higher on Tuesday – Asian session trader error blamed for bullish movement
- GBP/EUR exchange rate little changed after production data – Despite output smashing forecasts
Pound Creeps Higher, Construction Output Ahead
While the Pound Sterling to Euro (GBP/EUR) exchange rate initially failed to benefit from the UK’s narrower-than-expected trade deficit, GBP went on to record a 0.5% gain against the common currency.
The Pound brushed a high of 1.2808 but is unlikely to extend gains tomorrow unless the Bank of England’s (BoE) 12 month inflation forecast and the UK’s construction output report prove positive.
(Previously updated 12:20 09/06/2016)
GBP/EUR Dips Below 1.27 Before Trade Data
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.2690 before the release of the UK’s latest trade figures.
The British currency also dipped against peers like the US Dollar, New Zealand Dollar and Canadian Dollar despite forecasts that the UK’s trade deficit narrowed in April.
Although the trade deficit was shown to have contracted by more-than-expected, Sterling failed to derive much support from the data – although it did return to trading around the day’s opening levels.
The UK’s trade deficit with the EU was shown to be at a record high during the same period.
Economist Martin Beck said of the trade figures: ‘As ever, the monthly data has to be viewed with a healthy dose of scepticism given how noisy the data tends to be. Even though there is likely to be some payback in the May figures, this reading leaves the UK on track to post solid export growth in Q2. However, while export volumes were up 4.3% in the three months to April compared with the previous three months, import volumes were up by 4.6% over the same period. So as things stand net trade is likely to exert a drag on GDP growth in Q2, unless April’s apparent export strength is sustained.’
The GBP/EUR exchange rate was left trending in the region of 1.2733
(Previously updated 17:00 08/06/2016)
Pound Sterling (GBP) Struggling Amid Forecasts for Weaker Growth
The Pound Sterling to Euro (GBP/EUR) was left trending in the region of 1.2770 on Wednesday despite the UK publishing considerably better-than-forecast UK manufacturing and industrial production data.
Demand for Sterling remained limited as the World Bank’s global growth forecast was negatively revised.
According to World Bank: ‘Prospects for a recovery in the second quarter have dimmed.’
Although today’s UK GDP estimate proved positive, coming in at 0.5% – up from a positively revised 0.4%, the report failed to provide Sterling with much of a boost, but GBP movement has been almost wholly driven by Brexit related news so far in 2016.
Economic Calendar said of the report: ‘The NIESR made no reference to the EU referendum in the report, which is likely to be a deliberate omission given the proximity of the vote. Although there will still be a high degree of uncertainty over economic conditions ahead of the June 23rd vote and a highly volatile environment after the referendum vote, immediate economic fears should ease slightly.’
Any reports relating to the EU referendum could therefore trigger GBP volatility in the days and weeks ahead.
While the Pound’s performance against the Euro was fairly unimpressive on Wednesday, the British currency was able to advance on a weakened US Dollar as the result of developments in the EU referendum campaign.
(Previously updated 08:30 08/06/2016)
GBP/EUR Exchange Rate Weakened by Poor Chinese Data
A particularly sharp drop in Chinese exports in May prompted markets to return to a risk averse mentality on Wednesday morning, shoring up the Euro. With further support lacking for the Pound ahead of the latest UK Industrial and Manufacturing Production data this saw the Pound Sterling to Euro (GBP/EUR) exchange rate trending lower in the region of 1.2782.
(Previously updated at 16:58 on 07/06/2016)
Euro (EUR) Demand Remained Weak Amidst Market Risk Appetite
Confidence in the Euro (EUR) remained generally weak towards the close of Tuesday’s European session, with investors persistently unimpressed by the day’s positive Eurozone data. With the Pound still on bullish form the Pound Sterling to Euro (GBP/EUR) exchange rate continued to make gains, trending higher in the region of 1.2827.
(Previously updated at 16:18 on 07/06/16)
‘Brexit’ Worries Extended GBP/EUR Exchange Rate Downtrend
After sliding at the beginning of the week, the Pound Sterling to Euro (GBP/EUR) exchange rate staged an impressive recovery on Tuesday and achieved a high of 1.2899.
Markets were spooked to find that a number of referendum opinion polls showed an increase in support for the ‘Leave’ campaign. This naturally raised concerns that the risk of a ‘Brexit’ had not been adequately priced in by investors, prompting a sharp decline in Pound Sterling (GBP) on Monday. With nothing in the way of significant domestic ecostats released at the start of the week, this left markets little reason to favour the Pound, particularly as volatility is only likely to increase now that the EU referendum is less than three weeks away.
The Euro (EUR), meanwhile, remained on a stronger footing against rivals in the wake of Friday’s disappointing US Non-Farm Payrolls report. As the decidedly weaker-than-expected jobs data seemed to end all chances of an imminent interest rate hike from the Federal Reserve, this saw the US Dollar (USD) slump markedly. Comments from Fed Chair Janet Yellen confirmed that June was no longer on the table, benefitting the Euro further as the odds of greater policy divergence between the Fed and European Central Bank (ECB) subsequently diminished.
Trader Error Bolsters Pound Sterling (GBP) Exchange Rate
Demand for the Pound saw an unexpectedly strong rebound on Tuesday, with at least some of this abrupt overnight resurgence attributed to a ‘fat finger’ trade. Markets assessed that a trader error had prompted the sudden shift in demand for Sterling, with the effect exacerbated by the limited liquidity present in the Asian session. More substantial support for the Pound came in the form of a stronger-than-expected BRC Like-for-Like Sales figure, however, which indicated that consumer confidence had improved somewhat in May.
While German Industrial Production bettered forecast in April, this was not enough to bolster the Euro against the buoyant Pound. An upwards revision of the first quarter Eurozone GDP figures also failed to increase appetite for the common currency on Tuesday, with investors still unconvinced by the outlook of the domestic economy. With the ECB’s corporate bond buying program getting under way this week scepticism remains over the central bank’s ability to foster higher inflationary pressure, as researchers at BNP Paribas noted:
‘To justify the decision to maintain the current profile, Mario Draghi insisted that the easing effects of the measures announced in March have not been fully captured by the new projections. Although monetary policy is likely to focus on implementing previously approved measures, new measures cannot be ruled out in case of an unwanted tightening of monetary and financial conditions and/or the materialisation of second-round effects.’
GBP/EUR Exchange Rate Forecast: Pound to Turn Bearish on Weaker UK Production
Tomorrow’s UK Industrial and Manufacturing Production figures could put an end to the Pound’s recovery, with expectations pointing towards a continued slowdown in the sector. Should output have weakened further on the year in April, confidence in the strength of the UK economy is likely to evaporate once again. A weaker showing is also likely to stoke fresh fears that recent data disappointment is due to more than just referendum-based uncertainty.
Later in the week German trade data is expected to erode the appeal of the Euro, as forecasts suggest that the Eurozone’s powerhouse economy was weighed down by a fresh contraction in exports. Any further policy commentary from ECB President Mario Draghi could also add pressure to the softened single currency, assuming the policymaker does not indicate that further policy easing is unlikely.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was making strong gains in the region of 1.2818, while the Euro to Pound Sterling (EUR/GBP) pairing was slumped around 0.7801.