- Pound Euro 2016 Exchange Rate Falls to 1.17 – Lowest level in a week
- Sterling Weakened on Brexit Jitters – As well as poor industrial production results
- GBP Forecast: Final Day of Supreme Court Appeal – Brexit concerns could worsen
- EUR Forecast: European Central Bank Meeting Today – ECB expected to extend stimulus package
The Pound Euro 2016 exchange rate plummeted on Wednesday as Sterling was weakened by underwhelming UK ecostats as well as revived Brexit concerns. Meanwhile, the Euro firmed ahead of Thursday’s highly anticipated European Central Bank (ECB) meeting.
GBP EUR has already shed over two cents in value since Monday’s five-month-high of 1.20. However, further losses may be limited if the ECB delivers stimulus extensions today as expected.
Pound (GBP) Plunges on Growing Imminence of Brexit Process
While it began the week relatively sturdy, the Pound’s trajectory has switched firmly to the downside this week as 2016 edges to a close and markets become increasingly anxious about the reality of the Brexit.
A number of investors had held onto hope that Article 50 or the Brexit itself could be delayed or put on hold indefinitely in order for the UK to keep single market access for the foreseeable future.
However, this week’s Supreme Court proceedings and announcements from the UK government have made it increasingly evident that once 2017 begins, the clock will start ticking towards Article 50’s activation.
The UK government also confirmed on Wednesday that it would reveal its Brexit plans to Parliament so long as MPs voted in favour of activating Article 50.
This was seen by analysts as a way to force MPs into voting for Article 50’s activation and the news ultimately left the Pound falling throughout the day.
Sterling demand was also undermined by the day’s underwhelming UK October production results, which came in well below expectations and indicated that the Brexit vote may be beginning to effect economic activity.
Industrial production was expected to come in at 0.5% year-on-year but instead contracted at -1.1%, while manufacturing failed to hit 0.2% as forecast, printing -0.9%.
Euro (EUR) Firms Ahead of Thursday’s European Central Bank (ECB) Meeting
Various key factors have made the Euro a big focus for traders this week, most of all because investors widely expect the European Central Bank (ECB) will extend its stimulus measures in Thursday’s policy meeting.
This expectation has kept Euro demand limited in recent weeks and part of the shared currency’s advances this week have been largely due to the EUR speculative trade potential of Thursday’s meeting.
However, other genuine upside factors besides this and the Pound’s weakness have supported the Euro this week.
Most notably, political factors holding the Euro back last week relieved considerably this week as Austria voted against nationalist Norbert Hofer and Italy’s referendum result was perceived as not necessarily indicating a populist threat.
Italy’s Prime Minister Matteo Renzi resigned following the ‘No’ result of Sunday’s Italian constitutional referendum, leading to speculation that there could be a snap election in the coming months.
Many analysts and political commentators have called this unlikely however. A Wednesday report from Bloomberg even indicated that Renzi may be reconsidering stepping down in order to pursue stability. These rumours improved Euro sentiment.
Pound Euro 2016 Exchange Rate Forecast: European Central Bank (ECB) Meeting in Focus
Thursday’s European Central Bank (ECB) meeting is expected to see bank officials finally extend the ECB’s stimulus package beyond its original March 2017 end date; something analysts have been anticipating for months now.
ECB President Mario Draghi has previously indicated that the bank would offer more clarity on the future of monetary policy beyond March 2017.
If the bank extends its stimulus measures as expected, the Euro could be sold off throughout the day, which could see GBP EUR return closer to the week’s opening levels or even Monday’s five-month highs.
However, if the ECB surprises traders and delays extending the programme, or indicates that there will be no extension beyond March 2017, it will indicate to traders that the Eurozone economy’s recovery is impressing the ECB and that could leave the Euro soaring.
As for the Pound, Sterling is likely to feel ongoing pressure from Brexit news towards the end of the week.
Thursday will be the final day of the Supreme Court appeal and speculation on when UK Prime Minister Theresa May will reveal the government’s Brexit plan to Parliament will likely flare up.
Overall, the Pound Euro 2016 exchange rate is likely to recover on Thursday following the ECB meeting, but Brexit jitters could prevent Sterling from recovering all this week’s losses.