- Pound Euro Exchange Rate Plummets Further – BOE’s Mark Carney hints at near-term rate cuts and financial stimulus.
- George Osborne Announces Scrapping of ‘Long-Term Economic Plan’ – Plans for a £10 Billion budget surplus by 2020 waylaid by the Chancellor.
- Standard and Poor’s Downgrade Eurozone’s Long-Term Credit Rating – Eurozone economy demoted from AA+ to AA.
- GBP Forecast: Full Economic Calendar Ahead – EU ecostats have potential for currency movement while UK data remains mitigated by the Brexit.
The Pound Euro exchange rate fell by almost one pence on Thursday after Bank of England Governor Mark Carney set out the need to increase economic stimulus in the near future.
While the prospect of more stimulus was largely expected in light of forecasts that the UK will return to recession in the not-too-distant future, the commentary from Carney still weighed on GBP demand.
The pairing brushed a new multi-year low of 1.1853 as the UK’s credit ratings were downgraded and investors remained significantly concerned about the nation’s economic prospects.
Then on Friday the pairing was dealt another blow as George Osborne admitted defeat regarding his attempts to hit budget targets. Although he cited the recent Brexit complications as the reason, Osborne has failed to hit targets consistently since taking the position as Chancellor of the Exchequer despite stemming borrowing somewhat.
Before the end of Friday’s session, the Pound Euro exchange rate was trading at 1.1946 after falling over 0.50% throughout the day.
Pound Sterling (GBP) Stumbles Again as Osborne Reneges on ‘Long-Term Economic Plan’
The UK’s European Union membership referendum has been the death knell for Sterling, at least in the short-term.
On the night of the vote, just as the polls closed, surveys were still placing ‘Remain’ as the likely result. Consequently the Pound Euro exchange rate enjoyed a monthly zenith of 1.3155 but once a Brexit seemed inevitable, the pairing was gutted and almost immediately plunged to 1.2199.
The Pound has continued to generally depreciate against the Euro over the last week, with a brief really seen on the 29th as recently-resigned Prime Minister David Cameron attended talks in the European Parliament.
Last Thursday Bank of England (BoE) Governor Mark Carney took to the podium to address some concerns brought about by the Brexit. Carney eluded to the likelihood of an upcoming rate cut and hinted there could be further economic stimulus before the end of the summer. Naturally, this placed Sterling on the back-foot and the Pound Euro exchange rate fell over a cent on the day before recovering briefly, possibly due to Boris Johnson’s announcement that he would not be running for Tory party leadership.
The Pound was sucker-punched once again towards the end of the week as British Chancellor of the Exchequer George Osborne officially abandoned plans to create a £10 billion budget surplus by 2020. Osborne cited the ‘Brexit’ for reneging on his commitment, but last year he had previously overshot his targets by £2 billion, as he had the year previous, and the year before that as well. This eludes to the possibility that Osborne is just using the Brexit as an excuse for admitting defeat regarding his ‘long-term economic plan’.
Euro Wounded as Standard and Poor’s Downgrade Eurozone Credit Rating to AA
Amidst the havoc unleashed by the UK’s Brexit referendum, the Euro has struggled under an uncertain and unconfident market and rising Euroscepticism within some member states.
Last week, the respected rating agency Standard and Poor’s saw fit to demote the Eurozone’s long-term credit rating to just AA, down from the previous AA+ which likely placed some downward pressure on the common currency, however, in the same breath S&P also upgraded the Eurozone’s economic outlook to stable from negative.
Even though the fallout from the political and economic nuclear detonation that was the Brexit has only just begun to fall, never mind settle, throughout last week the Euro was able to recoup some previous losses, making up just over half of its rendered value.
Another undue source of downward pressure for the common currency is the change in the ECB’s (European Central Bank) quantitive easing guidelines. The planned change will allow the ECB to buy assets for QE from countries with less-than-shining economic outlooks. While it does mean that the European Central Bank has more ‘tools’ at its disposal, there comes a risk from the slim chance that these countries whose debt the ECB is buying may not be able to repay the loans, leaving the central bank out of pocket and out of luck.
Brexit Concerns Will Outweigh UK Data, Eurozone Ecostats Forecast to move GBP/EUR
This morning we should see the release of the UK’s construction PMI for June. Even with Sterling all-but-decoupled from domestic data, it is possible that a favourable print could stem any severe depreciations.
Midweek sees the release of the Bank of England’s financial stability report on Tuesday and, to risk spoiling it for some of you, it will presumptively make for some grim reading.
Wednesday appears to hold a small conclave of retail and construction PMIs for the Eurozone and Germany as well as German factory orders. All these ecostats serve as decent economic indicators so if the data prints spectacularly, in either direction, you could expect to see some movement.
For the UK, Thursday holds manufacturing and industrial production repots as well as a GDP estimate. If the production reports show an astronomical increase then it may place upward pressure on the Pound, but data has been markedly impotent of late. The GDP estimate is expected to be not-so-rosy as the Brexit has certainly taken its toll on UK growth.
At the end of the week we have both the UK and German trade balances. As with any UK data, it’s unlikely to affect much movement on the currency but Germany’s balance could have some impact as it is an export oriented nation. If the figure rises substantially then you could expect the Euro to feel some upward pressure.
Ultimately, the Pound Euro exchange rate stands the gain the most from any assurances that the British economy is back on track, or at least pointing in the right direction.