Pound to Euro Exchange Rate Capitalises on Euro Weakness amid Poor Eurozone Data
Hopes that the Brexit process could be formally delayed in order to prevent a worst-case scenario No-deal Brexit left the Pound Sterling to Euro (GBP/EUR) exchange rate far more appealing yesterday. Sterling (GBP) was able to more easily gain due to weak Eurozone data.
Since markets opened this week, GBP/EUR has continued the boost in demand it has experienced since the UK Parliament Brexit vote last week.
GBP/EUR touched on a fresh 2-month-high of 1.1496 overnight and trended closer to the level of 1.1484 at the time of writing.
The Pound slipped slightly back from its best levels amid comments from the EU that MPs that simply opposing a No-deal Brexit would not prevent it from happening.
However, Sterling was able to hold most of yesterday’s gains due to continued weakness in Eurozone ecostats.
Pound (GBP) Exchange Rate Rally Slows after Bullish Wednesday
Investors piled into the Pound yesterday, making the British currency surge against most major currency rivals including the Euro.
The surge in demand for the Pound was largely influenced by market bets that the risk of a worst-case scenario No-deal Brexit was receding.
Amid signs that UK politicians could support an amendment to formally delay the Brexit process, as well as rising expectations that MPs wish to avoid a No-deal Brexit, investors have bought the Pound.
According to Justin Onuekwusi, Fund Manager at Legal & General Investment Management:
‘Overall the view is Parliament doesn’t want a hard Brexit and nor does the EU… and if that’s the case I don’t see how it can happen,’
However, demand for the Pound did dampen slightly since hitting a 2-month-high overnight, as the latest comments from EU officials weighed slightly.
EU Chief Negotiator Michel Barnier warned that even if UK MPs make efforts to block a No-deal Brexit, it cannot ultimately be prevented unless an alternative solution of some kind is reached.
Euro (EUR) Exchange Rates Unappealing as Eurozone Data Continues to Disappoint
Rather than offering Euro investors any relief, the latest Eurozone data published this week has simply worsened the bloc’s economic outlook.
Following disappointing German, French and Eurozone confidence data earlier in the week, investors were particularly disappointed with the bloc’s latest PMI projections from Markit.
Markit’s January PMI projections were published this morning and fell short of expectations in many major prints.
French services and the overall composite print unexpectedly fell into contraction territory – below 50. German manufacturing also surprised with a fall to 49.9, rather than slipping slightly to 51.3 as expected.
The Eurozone’s overall PMI projections were highly disappointing. While they avoided contracting and printed above 50, it wasn’t by much.
Eurozone manufacturing unexpectedly slowed to 50.5, services to 50.8 and the overall composite print to 50.7.
The news worsened already high market concerns that the Eurozone’s economy was slowing down, making it much easier for the Pound to Euro exchange rate to remain near its best levels.
Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipate European Central Bank (ECB)
Investors still have little reason to buy the Euro this week, and they are unlikely to unless the European Central Bank (ECB) takes a surprisingly optimistic tone in this afternoon’s policy decision.
The ECB will hold its first monetary policy decision of the year this afternoon and the bank is not expected to make any changes to policy.
Instead, investors will be focused on the tone the bank takes regarding its policy outlook, especially any hints the bank has to make on whether or not it plans to hike Eurozone interest rates this year.
If the bank ramps up concerns about the Eurozone economy or is perceived as more dovish than expected, GBP/EUR could be in for further gains.
On the other hand, if the bank continues to indicate that it could still hike Eurozone interest rates later in the year, the Euro could recover some of this week’s losses.
Ifo’s German business confidence stats will come in on Friday, and any surprising developments or shifts of sentiment regarding Brexit could also influence the Pound to Euro (GBP/EUR) exchange rate for the remainder of the week.