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Major Recovery for GBP EUR Exchange Rate Possible if PM May Clears Brexit Uncertainty

The Pound gradually slid against the Euro last week, but has the potential to stage a recovery on Tuesday.

  • GBP EUR dropped from 1.16 to 1.14 last week – EUR GBP rate rose from 0.85 to 0.87
  • Pound softness caused by Brexit uncertainty and assumptions – 2017 UK unemployment to stagnate
  • Euro investors rattled by ECB minutes – Mixed messages taken from Germany’s 2016 performance
  • Major May speech due Tuesday – First ECB rate decision of 2017 on Thursday

The Euro has been faring well against a flagging Pound since last week, but it will be up to European Central Bank (ECB) officials to keep this optimism high over the coming week’s trading.

Pound Sterling Recap: Major GBP Drop Seen after PM Dampens Single Market Access Hopes

The Pound had a rough start to last week, sliding against the Euro after Theresa May said;

‘People often talk…as if somehow we’re leaving the EU but we want to keep bits of membership of the EU. We’re leaving. We’re coming out. We’re not going to be a member of the EU any longer’.

This was taken to mean that single market access would not be ‘essential’ to the UK during negotiations, which panicked investors considerably.

On Friday, Bank of England (BoE) official Michael Saunders offered a mixed outlook, stating that unemployment growth was unlikely in 2017, but so was wage growth.

Euro Influenced by European Central Bank (ECB) Divisions and Future Fears

The Euro was able to appreciate consistently against the Pound last week, thanks partly to the US Dollar collapsing after a poorly-received press conference from Donald Trump.

Eurozone news was more mixed; Germany’s trade surplus rose in November, while Eurozone unemployment remained at 9.8%.

German ecostats again made the news later in the week; GDP in 2016 rose, though the Government’s budget surplus as a ration of GDP over the year reduced slightly.

A strong source of influence on Thursday was the ECB, which released minutes from the December monetary policy meeting.

Investors were cheered by the news that policymakers were divided over whether to continue quantitative easing, but this news was tempered by officials fearing what 2017’s German and French elections could bring, among others.

Pile of euros

This Week’s GBP EUR Forecast: Sterling Trading may Accelerate if Theresa May Banishes ‘Hard Brexit’ Fears

The coming week for the UK is set to see investors focus on Tuesday primarily, when the Prime Minister is due to give a speech specifically on Brexit.

Given how much the Pound was devalued last week by uncertainty and vagueness in the PM’s statements, it behoves Theresa May to be as clear and as frank as possible, else she risks giving an encore performance to the interview of last Sunday and shattering GBP demand once again. The best case scenario for Sterling would be an absolute denial by May that ‘Hard Brexit’ is even an option.

UK domestic data will be lumped on Tuesday, Wednesday and Friday, covering inflation, jobs and retail sales respectively.

Inflation in December is expected to rise, an unemployment, claims and earnings uptick are forecast while retail sales over the Christmas month are predicted to climb on the year but remain unchanged on the month.

For the Euro, next week’s notable news will start with Monday’s trade balance for November; a rise is expected from 20.1bn to 22bn. Any optimism from such a result could be expanded on Tuesday if German ZEW economic sentiment scores rise as forecast.

Asides from positively-predicted Eurozone inflation figures on Wednesday, the only other major news will be Thursday afternoon’s European Central Bank (ECB) interest rate decision.

The first decision of 2017 is expected to see no change at 0%, so the following press conference will be the actual part of the event to watch out for.

GBP EUR Interbank Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.14 and the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.87 today.