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Pound Euro Exchange Rate Investors Anticipate German Inflation Data

  • Pound Euro Exchange Rate Near 1.13 – Brief jump to 1.14 on Friday
  • Sterling Supported by Brexit News – But Eurozone PMIs boost Euro
  • GBP Forecast: UK Growth Data Ahead – As well as UK consumer confidence
  • EUR Forecast: Key Data This Week – German inflation due Thursday

Last week saw the Pound Euro exchange rate drop as lingering uncertainty about Britain’s political situation and economy kept pressure on Sterling. However, promising Brexit developments helped GBP EUR recover from lows later in the week.

GBP EUR began the week trending at the level of 1.1420. By the middle of the week the pair was trending in the region of 1.13 and was unable to recover to above 1.14 for an extended period of time.

Pound (GBP) Supported by Brexit Hopes

The Pound has been highly volatile over the last week, largely because it was certainly a busy week for Britain.

At the beginning of the week, formal Brexit negotiations finally began and appeared to be off to a smooth start.

UK and EU negotiators agreed that the biggest priorities would be the citizen rights of UK and EU nationals, the UK-EU ‘divorce bill’, and issues regarding the Ireland border.

Later in the week, UK Prime Minister Theresa May made a ‘fair and serious’ offer about the rights of EU citizens in Britain, during an EU leaders’ summit in Brussels.

She proposed that EU citizens living in Britain legally before the Brexit process ends will be able to build up the same rights as UK citizens over time.

While her comments received criticism from some EU officials, with European Council President Donald Tusk stating it was ‘below our expectations’ and needed more detail, the Pound saw an increase in demand.

Investors were relieved that some effort was being made to protect businesses from losing EU workers during the Brexit process.

Friday the 23rd of June, notably, marked one year since the pivotal Brexit vote took place. Analysts took note of how the Pound had fared over the last year. According to Graham Bishop from Heartwood Investment Management;

‘Sterling’s devaluation in response to the shock UK Referendum result has been the most significant market event in recent years.

It has yet to materially recover from its post-referendum low and now remains vulnerable to even more political and economic uncertainty.’

Speaking of economic uncertainty, last week also saw Bank of England (BoE) officials Mark Carney and Andy Haldane disagree over whether or not Britain needed an interest rate hike. This meant more volatility for the Pound.

Euro (EUR) Supported by Optimistic PMI Data

While last week’s Eurozone data was mixed in places, it generally indicated as usual that the Eurozone’s economy was becoming more resilient and that recovery was continuing.

Friday saw the publication of Markit’s preliminary June PMIs for the Eurozone. Germany’s key manufacturing PMI beat expectations of 59 by only slipping from 59.5 to 59.3. Manufacturing also beat expectations in France.

However, the Eurozone’s services sectors performed well below expectations in June, dragging down the overall composite prints throughout the bloc.

German services dropped from 55.4 to 53.7 despite being projected to edge higher, while French services slumped from 57.2 to 55.3.

As a result, the Eurozone’s overall services PMI only came in at 54.7, well below the forecast 56.2. The Eurozone’s composite PMI slowed from 56.8 to 55.7 rather than the forecast 56.6.

Still, while these PMIs fell short of expectations they still rounded off the best quarter of Eurozone private sector activity since 2011. According to Markit’s Chris Williamson, these results indicated that the Eurozone’s growth could improve from 0.6% to 0.7% in Q2 2017.

Speaking of growth, France’s Q1 Gross Domestic Product (GDP) was revised higher to a solid 0.5% on Friday, so overall the Euro outlook improved last week.

Pound Euro Forecast: Key Data Due Next Week

Britain and the Eurozone’s economic calendars will be busier next week, but Pound investors will still be influenced by Brexit news or other political developments in Britain. This will give Pound Euro investors plenty to digest over the week.

Key data will be published throughout the week. Monday will see the publication of Ifo’s German business confidence surveys from June and Britain’s May mortgage approval report from BBA.

Tuesday will follow GfK’s UK consumer confidence survey for June and the Bank of England’s (BoE) latest financial stability report.

Even more important data will be published later in the week, including Britain’s final Q1 Gross Domestic Product (GDP) results and Germany’s preliminary Consumer Price Index (CPI) report from June.

Germany’s inflation stats are likely to be the most influential for GBP EUR traders throughout the week. While the Eurozone’s economy is recovering, concerns remain about the bloc’s slower-than-hoped inflation.

If German inflation beats expectations, the Euro could see an increase in demand and the Pound Euro exchange rate would fall next week.