Pound to Euro Exchange Rate Edges Higher on Buoyed Soft Brexit Hopes
It’s been another volatile week for the Pound (GBP) so far, but the Pound to Euro (GBP/EUR) exchange rate rebounded slightly from its worst levels since Tuesday amid the latest Brexit developments – and disappointing Eurozone data.
Since opening this week at the level of 1.1265, GBP/EUR has generally been trending lower. On Tuesday, GBP/EUR touched a low of 1.1186 – the pair’s worst levels since mid-September.
On Tuesday evening and Wednesday morning though, GBP/EUR rebounded from those lows and at the time of writing was trending closer to the level of 1.1235.
As has been the case recently, Sterling has been reacting to Brexit developments more than UK data.
The latest Brexit speculation helped to buoy the British currency, which recovered more easily against the Euro thanks to some disappointing Eurozone PMI data published on Wednesday morning.
Pound (GBP) Exchange Rates Benefits from Speculation of Softer Brexit
Earlier in the week, the Pound was embattled by fears about the stability of the UK government as it faced criticism from UK MPs about its refusal to publish the full legal advice it had been given on Brexit.
Investors briefly sold Sterling on Tuesday evening, in reaction to news that UK Parliament had voted to hold the UK government in contempt of Parliament over the matter.
However, the Pound recovered slightly later in the night and on Wednesday, as UK Parliament voted in favour of an amendment granting Parliament greater power in how the Brexit process proceeds in the event that Prime Minister Theresa May’s deal is voted down next week.
Markets had been concerned that there was not enough domestic support for May’s deal for it to pass. This worsened fears that the deal could collapse and lead to a ‘no-deal Brexit’.
However, the Parliament amendment boosted hopes that a ‘no-deal Brexit’ would be avoided. According to Connor Campbell, Financial Analyst at SpreadEx:
‘I think that the success of Dominic Grieve’s amendment in Parliament yesterday ups the chances of avoiding a no-deal Brexit, because if Theresa May’s plan gets voted down, MPs now have more of a say in the aftermath,’
These hopes helped the Pound to recover, despite Wednesday’s disappointing UK services PMI report.
Euro (EUR) Exchange Rates Weaken on Further Evidence of Eurozone Economic Slowdown
While the Eurozone’s November PMI results actually beat projections, they still confirmed what investors have been anxious about – that the Eurozone’s slowing manufacturing is having an adverse effect on other parts of the economy.
On Wednesday, Eurozone services PMI data slowed from 53.7 to 53.4, while the overall composite print slowed from 53.1 to just 52.7.
The PMI indicated that Eurozone business growth was at its weakest level in over two years.
The data dampened market hopes that the Eurozone economy would rebound slightly towards the end of the year.
Analysts had been predicting that the Eurozone bloc would grow 0.4% in Q4 2018, but according to Chris Williamson, Chief Business Economist at Markit:
‘The final Eurozone PMI for November came in higher than the flash reading but still only points to modest GDP growth of approximately 0.3% in the fourth quarter, suggesting the region remains stuck in a soft-patch,’
Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipate Brexit Developments and Eurozone Growth
As the balance of influence for the Brexit process has shifted away slightly from the UK government and towards UK Parliament as a whole, markets are highly anxious to see how the Brexit process may develop in the coming weeks.
This means that, unsurprisingly, Pound movement will be driven primarily by Brexit developments with data taking a backseat until there is some solid clarity on how the Brexit process will unfold.
Signs that UK Parliament will work to stop a ‘no-deal Brexit’ from happening will help the Pound to recover, but fears that the deal could collapse and that a ‘no-deal Brexit’ could still happen may leave the Pound weaker.
The Euro’s strength versus Sterling is limited amid market expectations for the Eurozone economic slowdown to continue, so upcoming Eurozone growth data may prove influential.
Thursday will see the publication of Germany’s latest factory orders and construction data, followed by industrial production on Friday.
The most influential dataset on the way for the Pound to Euro (GBP/EUR) exchange rate however, will be Friday’s latest Q3 Eurozone Gross Domestic Product (GDP) growth projection.