- Pound Euro Exchange Rate Forecast to Drop – UK PMIs could cause GBP/EUR to plummet
- Euro (EUR) Boosted Slightly by Lack of ECB News – President Draghi avoids dovish tone
- Update: UK’s Preliminary July PMIs Disappoint – All measures in contraction
- Forecast: First Indication of Brexit Damage – How will Q2 UK growth have performed?
Pound Euro Exchange Rate Forecast to see Additional Pressure Going Forward
The Pound plummeted across the board during Friday’s session as Markit’s flash July PMIs revealed the effects the Brexit vote aftermath had had on the British economy.
In what Markit Chief Economist Chris Williamson called a ‘dramatic deterioration’ of the economy, already bearish UK PMI forecasts came in even worse than expected.
Williamson suggested that the UK economy could contract by 0.4% throughout Q3 if this sort of economic movement continues. Some analysts have reacted to the news by predicting that the UK could enter a brief recession in the coming months.
Britain’s economic activity dropped at its fastest level since the 2008 financial crisis. On the other hand, Eurozone PMI indicated that the Euro bloc had been more resilient than expected in the face of potential Brexit damage, boosting the Euro.
Investors now look ahead to next week’s preliminary Q2 UK Gross Domestic Product (GDP) report. A worse-than-expected Q2 growth would worsen Q3 growth forecasts and put considerable strain on already pressured Pound trade.
(Previously updated 10:32 BST 22/07/2016)
The Pound Euro exchange rate slumped by 0.6% on Friday as the UK’s Services, Manufacturing and Composite PMIs for the first quarter all came in below the 50 mark separating growth from contraction.
Sterling also fell against a number of its other most traded peers as investors responded to the worst-than-forecast results.
(Previously updated 08:00 22/07/2016)
The Pound Euro exchange rate dropped once more on Thursday, following a pattern of wide fluctuations from the Pound this week. Underwhelming UK retail sales figures as well as an even less-active-than-expected European Central Bank (ECB) allowed the Euro to capitalise.
GBP/EUR headed lower on Thursday morning, fluctuating in the region of 1.1980 before the European Central Bank’s (ECB) policy meeting. Sterling’s attempts to improve proved more fruitless after the ECB meeting, and the pair fluctuated in the region of 1.1980 throughout the afternoon.
While the Pound hasn’t experienced the kind of rally it enjoyed following Theresa May’s appointment as PM, the currency has still performed comparatively well this week and remains around 4 cents higher than it’s lowest levels struck in the immediate aftermath of the referendum.
Sterling (GBP) Exchange Rate Performance Mixed on June Data
The Pound has fluctuated widely between highs above 1.20 and lows of 1.1870 since markets opened this week as investors moved in reaction to nearly every piece of UK data amid the expectation that the effects of the Brexit had finally begun to show themselves in figures.
Sterling plummeted on Tuesday as investors took profit from the currency’s recent highs. It then recovered on Wednesday in response to news that UK unemployment was better-than-expected in May.
The key unemployment rate unexpectedly fell to 4.9% in May – the lowest unemployment rate in 11 years, thanks to a 54k increase in new jobs.
While the figures come from May, it boosted investor hopes that the UK job market would be solid enough to soften potential Brexit-related blows in June and July.
However, on Thursday Sterling dropped once again due to underwhelming UK retail sales figures for June. GBP/EUR initially plummeted to 1.1922 in response to the news as investors feared the figure was due to Brexit concerns hitting consumers.
However, the Office for National Statistics confirmed that the low scores were due to unexpectedly poor weather in June affecting clothing sales, and indicated that the upcoming EU Referendum had not effected consumer spending throughout the month.
Euro (EUR) Slightly Boosted by Relaxed ECB Statements
Markets had been eagerly anticipating the European Central Bank’s (ECB) July policy decision meeting since the Bank of England (BoE) meeting last week.
However, as ECB stimulus bets fell following the BoE’s decision to leave UK policy frozen, no one was surprised when the ECB decided to once again leave Eurozone policy frozen too.
ECB President Mario Draghi maintained his regular narrative in the accompanying press conference, reasserting that the current easing measures would remain in place until at least March 2017. He also stated once more that the ECB was prepared to do what was needed to keep the economy steady.
The Euro was slightly relieved by the event, particularly the indication that the Brexit had had little effect on the Eurozone thus far.
While Draghi warned of the Brexit’s downside risks and claimed it was still too early to see the effects, he played down potential Brexit shockwaves according to The Wall Street Journal;
‘Mr. Draghi revealed very little new information about the central bank’s stimulus measures, noting that the ECB’s macroeconomic projections in September would be the best coming guide to any further monetary easing.
Mr. Draghi added that European financial markets had displayed “encouraging resilience” to the aftereffects of the Brexit vote, but that the potential negative surprises for the Eurozone economy still outweighed the positives.’
Pound Euro Exchange Rate Forecast: Preliminary July PMIs Ahead
The Pound to Euro exchange rate could plummet on Friday if July’s first UK PMI scores indicate that the Brexit has had a tangible negative effect on the UK’s economy.
In one of the first major pieces of July data due to be released, Markit’s reports will finally give economists an indication of how the Brexit result may have effected Britain’s economy.
Manufacturing is expected to drop from 52.1 to 47.5, and Services are expected to fall from 52.3 to 48.7. A worse-than-expected score would lead to a Sterling plummet, whereas better-than-expected figures could cause the currency to surge across the board.
PMIs for the Eurozone are also due to be released and similarly could indicate how much (or how little) the bloc has been able to weather the potential shockwaves that the Brexit vote led to.
As for the European Central Bank (ECB), the bank’s predictably uneventful event is unlikely to have any lasting effect on Euro movement.
While ECB President Draghi slightly playing down the effects the Brexit could have on the Eurozone economy bolstered the Euro slightly on Thursday, the movement was not considerable enough to last.
However, bets that the ECB will take action in September are now likely to rise. The ECB does not meet during August, so will have that time to further assess the effects of the Brexit as well as the Bank of England’s action (or lack thereof) in August. Currently, some analysts suggest that the ECB may extend its Quantitative Easing timetable in September.
As a result, July’s preliminary PMIs for the UK and Eurozone look to be the most vital potential influences for today’s Pound Euro exchange rate forecast.