The Pound (GBP) has continued to struggle against the Euro (EUR) today, posting small losses in the GBP/EUR pairing.
This deterioration is partly down to the latest worrying forecast about the effect of Brexit on UK consumers.
Analysts at Oliver Wyman believe that UK households could be -£1000 worse off after Brexit, if trade with the EU is disrupted.
For the analysts, the main issue is that unfavourable trading conditions will increase import costs, which could be passed onto consumers.
Although only a hypothetical forecast at this point, the analysis has still lowered demand for the Pound on a difficult start to the week.
(Last updated 18th June, 2018)
Poor Outlook on UK GDP Growth Causes Pound Sterling to Euro (GBP/EUR) Decline
The Pound to Euro exchange rate (GBP/EUR) has fallen today, following forecasts for slower UK economic growth over 2018 and 2019.
Analysts at the British Chambers of Commerce (BCC) warn that UK economic growth in 2018 could slow to its lowest rate since 2009, cutting forecasts from 1.4% to 1.3%.
Explaining the reasoning behind this negative outlook, BCC Head of Economics Suren Thiru said:
“While Brexit uncertainty and the weakness in Sterling have weighed on overall UK growth, it is the failure to deal with the longstanding structural issues from weak productivity to the deep imbalances in the UK economy that continue to undermine growth potential.”
German and French Talks on Eurozone Reform Boost Euro to Pound (EUR/GBP) Exchange Rate
The Euro (EUR) has firmed against the Pound (GBP) today, thanks to signs of an imminent agreement between German and French leaders over Eurozone reform.
French Finance Minister Bruno Le Maire has declared that:
“An agreement is close at hand. There are two or three remaining issues [to resolve], but there are clearly defined and limited.”
French President Emmanuel Macron has tried to convince German Chancellor Angela Merkel to support a closer Eurozone union since taking office in 2017.
Previous efforts have met a lukewarm response, but Mr Le Maire’s remarks suggest that official agreement is imminent.
Pound Sterling to Euro Exchange Rate Forecast: Are GBP/EUR Losses ahead on Eurozone Construction Growth?
The Pound (GBP) is at risk of making greater losses against the Euro (EUR) over the rest of the week, ahead of Thursday’s Bank of England (BoE) meeting.
Eurozone data will be in focus before then, with the main announcement being Tuesday’s year-on-year construction output reading for April.
This is predicted to show significant growth in construction sector activity compared to April 2017, with an increase from 0.8% to 2% on the cards.
While this wouldn’t match up to January 2018’s 6.9% rise in construction activity, it would still be a supportive boost to sector growth.
Returning to the UK, the week’s first notable economic data will be Wednesday’s Confederation of British Industry (CBI) industrial orders figure for June.
This is predicted to show growth from May’s -3 points to 2 points, marking more factory orders instead of the previous contraction.
The main event for Pound Sterling traders this week is Thursday’s BoE Monetary Policy Committee (MPC) meeting.
MPC members aren’t expected to raise interest rates from 0.5%, but there may still be GBP/EUR exchange rate gains if the BoE minutes contain optimistic forecasts.
Recent UK economic data has rattled economic forecasters, but some are still holding out for a BoE interest rate hike as early as August.
If the minutes point towards a possible interest rate hike in the coming months, the Pound might rally against the Euro because of GBP trader optimism.