- Pound Euro Exchange Rate Slips – Hits 1.17 lows on Thursday
- UK PMIs Impress – But Euro remains strong on French election hopes
- GBP Forecast: Bank of England Meet Next Week – Unlikely to alter monetary policy
- EUR Forecast: French Election on Sunday – Jitters could weaken Euro on Friday
Pound Euro Exchange Rate Recovers Slightly on French Election Jitters
Despite increased hopes that Emmanuel Macron would win the French Presidential election on Sunday, the Euro weakened slightly on Friday due to persistent market anxiousness.
Analysts still consider a win for anti-EU Marine Le Pen to be a possibility. If she defies expectations and wins the election, bets of a ‘Frexit’ will soar and the Euro will see significant losses in the coming months.
However, a Macron win is expected to be more likely. In this scenario, GBP EUR will fall on Monday as investors buy the Euro in a relief rally.
Next week’s economic calendar includes the Bank of England’s (BoE) May policy meeting and Germany’s Q1 Gross Domestic Product (GDP) projections. However, the results of the French election are most likely to influence whether GBP EUR rises or falls next week.
[Previously updated 12:59 BST 05/05/2017]
The Pound Euro exchange rate emerged slightly from its worst weekly levels on Friday as French election jitters weakened the Euro.
However, confidence in a French election win for pro-EU Emmanuel Macron was still relatively high. Macron’s opinion polls have also improved since this week’s televised debate between him and anti-EU Marine Le Pen.
As a result, GBP EUR remains well below the week’s opening levels and is unlikely to recover much further before the end of the week’s trade session.
[Published 06:00 BST 05/05/2017]
Despite a full set of better-than-expected UK PMIs this week, the Pound Euro exchange rate weakened on Thursday due to market hopes for a pro-EU outcome for the upcoming French Presidential election.
GBP EUR began the week trending at the level of 1.18. After falling from the week’s opening levels, the pair touched 1.17 lows during Thursday’s European session.
Pound (GBP) Sturdy after Hat-Trick of Strong PMIs
While it couldn’t advance against this week’s strong Euro, the Pound limited its Thursday losses thanks to UK PMIs from Markit.
Markit’s April reports all beat expectations, including Britain’s key services sector PMI which was published on Thursday.
UK services were projected to slow from 55 to 54.5 in April, but the print instead came in at 55.8.
Analysts were generally optimistic about the results, reducing concerns that Britain’s economic output is slowing due to rising inflation and slowing wage growth. Kathleen Brooks from City Index stated;
‘The UK service sector has caught up with the manufacturing sector, and today’s PMI data for April suggests that the UK economy will rebound once more in Q2, after a disappointing start to the year. This has been greeted by a bounce higher in the Pound.’
Britain’s overall composite PMI improved from 54.9 to an impressive 56.2. Economists from IHS Markit noted that UK growth could come in at around 0.6% in April, after slower 0.3% growth in the first three months of 2017.
However, the Pound Euro exchange rate’s strength was limited on Thursday by concerns about rising UK-EU tensions ahead of Brexit negotiations, as well as the broad strength of the Euro throughout the day.
Euro (EUR) Benefits from French Election Hopes
With just one market session before the French Presidential election’s second round on Sunday, Euro trade has once again become highly politically correlated.
Wednesday saw the final two candidates of the election, pro-EU Emmanuel Macron and anti-EU Marine Le Pen, go head to head in a televised Presidential election debate.
In what viewers and the press considered to be quite an aggressive showing, the debate spanned over an hour and included a lot of mud-slinging from the candidates.
In the end, 63% of the polled viewers stated that they found Macron to be the ‘most convincing’ of the two. In round two opinion polling, Macron has typically taken around 60% of the vote compared to Le Pen’s 40%, giving him a big lead.
Euro traders reacted to Macron’s perceived debate win on Thursday, buying the Euro as hopes of a Macron win increased. If Emmanuel Macron wins the French election, France is likely to improve its relationship with the EU, which is seen as a plus for the shared currency.
Eurozone data published on Thursday was also solid, which improved Euro demand. The bloc’s composite PMI for April and March retail sales stats both came in higher than expected.
Pound Euro Forecast: Macron Victory Could Send GBP/EUR Lower
Global foreign exchange markets are likely to set their sights on France again on Friday and adjust their positions ahead of Sunday’s final round of the French Presidential election.
Sunday will see pro-EU centrist Emmanuel Macron and anti-EU far-right Marine Le Pen go one-on-one. Citizens across France will vote for their choice of the two and the winner of the most votes will become France’s next President. Simple!
Le Pen has made a ‘Frexit’ a major part of her election campaign. If she were to win the election, bets of a ‘Frexit’ would soar. As France is one of the Eurozone’s biggest economies this has been seen as one of the most significant threats to the Eurozone itself.
Markets are still anxious that Le Pen could pull off a surprise election victory, which could leave the Euro weaker on Friday as some investors will look to minimise potential losses.
Friday’s European session will see the publication of Germany’s construction PMI from April as well as the Eurozone’s April PMI.
If these impress GBP EUR’s advance potential may be limited, but due to market focus on the French election, this data is unlikely to have a strong effect on GBP EUR trade.
The Pound Euro exchange rate may recover slightly on Eurozone political jitters, but the pair is unlikely to return to the week’s opening levels.