- Pound Euro Exchange Rate Once Again Above 1.19 – But could reach 1.20
- UK Unemployment Figure Lower Than Expected – UK employment up in May
- Update: European Central Bank Meeting Thursday – First post-Brexit meeting uneventful
- Update: UK July PMI on Friday – Brexit causes dramatic drop in UK economy
- Forecast: Q2 Growth Figures Ahead – UK and Eurozone’s flash Q2 growth scores next week
Pound Euro Exchange Rate Plummets as PMIs Indicate Brexit Damage
The Pound Euro exchange rate plummeted to fluctuate nearer the key level of 1.19 during Friday’s session, as Markit’s flash July PMI figures undermined the Pound with its grim findings.
As one of the first reports to print findings of how the UK’s economy was coping with the aftermath of the Brexit vote in late-June, lower-than-expected scores caused investors’ Brexit worries to worsen.
Manufacturing and Services contracted at 49.1 and 47.4 respectively, with Markit suggesting that the UK’s economy could contract by as much as 0.4% in Q3.
The Eurozone’s flash PMIs painted a different story. These figures largely printed above bearish expectations and indicated that the Eurozone’s economy had remained more resilient than expected to the potential damage of Brexit shockwaves.
Markets now look ahead to next week’s session, which sees the publication of preliminary Q2 growth figures for both the UK and the Eurozone.
(Previously updated 17:01 BST 21/07/2016)
Pound Euro Exchange Rate Slips on Thursday
The Pound to Euro exchange rate slipped from its weekly best levels on Thursday as disappointing UK retail sales in June and an uneventful European Central Bank (ECB) meeting weighed on the Pound.
While news that the ECB had left monetary policy untouched once again initially boosted the Euro, the currency’s movement flattened a little towards Thursday evening.
ECB President Mario Draghi’s calm narrative was the same as usual. The ECB had the tools to stave off economic damage, but would remain in ‘wait and see’ mode until further data is available.
This was especially relevant in relation to the Brexit. The bank took a similar stance to the Bank of England (BoE), hesitant to act on Brexit damage that may be temporary – although Draghi believed that the Eurozone had done well in remaining resilient so far.
Investors look ahead to Friday’s preliminary July PMIs in the short term – and ahead to the ECB’s September meeting in the long term.
The ECB will not meet in August, but hinted that more action may come when it meets again in September. Some analysts believe the bank will alter its Quantitative Easing measures at that time.
(Previously updated 09:02 BST 21/07/2016)
The Pound Euro exchange rate advanced during Wednesday’s session following a bearish Tuesday for Sterling, as investors reacted with optimism towards the latest UK employment data. The Euro, on the other hand, saw mixed movement as investors adjusted their position ahead of Thursday’s European Central Bank (ECB) policy decision meeting.
GBP/EUR has fluctuated relatively close to the week’s opening levels of 1.1955 so far this week, hitting a weekly high of 1.2010 and a low of 1.1868. With both currencies still relatively uninspired, the pair trended in the region of 1.1966 on Wednesday afternoon.
While the Pound has failed to push beyond 1.21 for a prolonged period of time since the UK’s decision to Brexit, the pairing is still well up on it’s post-Brexit low of 1.16.
Pound (GBP) Gains as May Employment Figures Beat Expectations
While Sterling slipped on Tuesday as investors took profit from the currency’s recent highs, the Pound looked set to return to near those highs during Wednesday’s session as the Pound jumped once more.
Initially trending flatly and without inspired movement, the Pound saw a burst of upward movement following the release of May’s employment figures and June’s jobless claim figures. As reported by the BBC;
‘In the March-to-May period, the number of people in work rose by 176,000, with the employment rate remaining at a record high of 74.4%.
Earnings, not adjusted for inflation and excluding bonuses, rose by 2.2% compared with last year.
There were 23.19 million people working full-time, 401,000 more than for a year earlier.’
June’s jobless claims figures were also solid. The number of claimants remained at 2.2%, while the number of new jobless claims was a promisingly low 0.4k.
However, Brexit concerns hindered the Pound despite this good news, preventing the currency from gaining too solidly. Concerns that the job market would suffer considerably from post-Brexit job market panic in next month’s reports weighed on the minds of investors.
Euro (EUR) Flounders as Investors Readjust Ahead of ECB Meet
The Euro fluctuated during Wednesday’s session, as the imminence of the European Central Bank’s (ECB) first post-Brexit policy decision meeting took hold of Euro trade.
While easing bets have been low since the Bank of England (BoE) announced that UK policy would be left frozen until August, markets remain concerned that the ECB could discuss the negative effects of Britain’s decision to leave the European Union.
Eurozone consumer confidence figures were also released on Wednesday afternoon. The July figure plummeted from -7.2 to around -7.9. While a drop was expected, reactions to the score have been mixed with some suggesting that the score is not as bad as expected.
However, according to HIS Global Insight economist, Howard Archer, the figure does indeed leave some cause for Brexit-related concern;
‘There may be an element of relief that July’s drop in Eurozone consumer confidence was not greater and it may alleviate some of the deepest concerns about how much Eurozone growth will be negatively impacted by the Brexit vote.
Nevertheless the clear dip in Eurozone consumer confidence in July reinforces belief that the Brexit vote will have some dampening impact on Eurozone economic activity – particularly as the consumer has been a key growth driver for the Eurozone, notably in the first quarter of this year.’
Archer went on to state that despite the concerns, consumer life in the Eurozone was solid due to low consumer prices and improving labour markets.
Pound Euro Exchange Rate Forecast: Will the ECB Take Action?
The Pound to Euro exchange rate is likely to improve once more during Thursday’s session, and could even hold its ground above the key level of 1.20 – assuming the European Central Bank (ECB) takes a dovish tone in its first post-Brexit policy meeting.
ECB President Mario Draghi has been largely silent since the UK voted to leave the European Union in late-June, besides briefly expressing words of sadness in the days following the result.
While ECB rate cut bets have always been relatively low for July, and fell lower still once the Bank of England (BoE) announced that it would leave UK rates frozen until August, markets still eagerly await the bank’s statements on the Brexit.
Economists are hoping for the ECB to give a more detailed assessment of how the bank could handle the Brexit going forward, and how the UK’s vote could affect the Eurozone’s economy as a whole.
If the central bank implies that the Eurozone will be able to weather the worst of the market’s Brexit-panic, the Euro will likely soar in a relief rally.
However, a dovish Brexit forecast would have the opposite effect. This could be the more likely outcome, as recent data has suggested that the Brexit has indeed affected the Eurozone in some way.
Meanwhile, the Pound is unlikely to see much inspired movement until Friday’s session, when Markit will be releasing its preliminary July PMI report for Britain.
This report will be the first real indication of how Britain’s work sectors have been affected since the EU Referendum. Worse-than-expected results would certainly send the Pound Euro exchange rate hurtling back towards its recent lows.