Thursday’s Solid Eurozone Data Keeps Pressure on Pound to Euro Exchange Rate
This week’s solid Eurozone data has prevented the Pound to Euro (GBP/EUR) exchange rate from advancing, as investors continue to expect more strength ahead for the Eurozone economy and the Euro (EUR) itself.
GBP/EUR has only fallen slightly so far this week. The pair opened at the level of 1.1285 and briefly hit a low of 1.1215 on Wednesday but trended closer to the level of 1.1245 on Thursday.
Sterling (GBP) attempted to recover against the Euro on Thursday but it was weighed by the latest Eurozone ecostats, many of which beat expectations and continued to indicate that the currency bloc was seeing strong economic performance.
Thursday saw the publication of France’s Q4 unemployment rate results. Not only was the previous figure revised lower from 9.7% to 9.6%, but the Q4 figure came in with a notable improvement of 8.9%.
The latest unemployment rate from The Netherlands impressed too, improving from 4.4% to 4.2% in January.
On top of this, Spain’s final January inflation results came in slightly better-than-expected year-on-year. The figure was projected to come in at 0.5% but instead printed 0.6%.
Pound (GBP) Exchange Rates Edge Higher as UK Political Concerns Lighten
Market concerns that UK Prime Minister Theresa May’s position could be undermined from within her party have faded somewhat in recent sessions, leaving investors slightly more confident in the stability of the UK government to handle Brexit negotiations.
Since the beginning of the year, markets had been concerned that fissures within the UK government could mean UK Prime Minister Theresa May loses her power or that Brexit negotiations could fall through due to a lack of cohesion from UK negotiators.
Analysts are now suggesting that the UK government is increasingly being perceived as more likely to last. According to Adam Cole, analysts from the Royal Bank of Canada;
‘The probability of this government serving its full five years has also risen to a new high (36%), though the risk of an earlier election is still high.
Both of these developments have probably offered some support to GBP (Sterling).’
Concerns about the Brexit process are keeping pressure on Sterling gains however. Uncertainty about how Brexit talks could unfold are also the reason the Pound failed to benefit from UK inflation data this week.
Strong Eurozone Growth Outlook Keeps Euro (EUR) Exchange Rates Appealing
Wednesday’s Q4 2017 Gross Domestic Product (GDP) projections from the Eurozone fell short of expectations in some prints but were still solid and indicated that Germany and the Eurozone as a whole were among the strongest performers among G7 nations last year.
Germany’s year-on-year growth rate was forecast to have improved to 3.0%, but the projection only came in at 2.9%. This still left Germany as the fastest growing G7 economy of 2017 however.
Italy’s Q4 growth projection came in at 1.6% year-on-year as forecast while the Eurozone’s latest yearly growth projection came in at 2.7% as expected.
Pound to Euro (GBP/EUR) Forecast: UK Retail Sales Results Ahead
While Sterling’s movement has been more strongly influenced by domestic political news and Brexit developments in recent sessions, it could still find additional support on Friday if Britain’s upcoming retail sales results impress.
UK retail sales data from January will be published on Friday morning. Retail sales are forecast to have improved from -1.5% to 0.5% month-on-month and from 1.4% to 2.6% year-on-year.
If they beat expectations it could boost market hopes that British consumers are still resilient in the face of the Brexit process and the ongoing pay squeeze.
However, Brexit concerns could continue to weigh on Sterling regardless and limit the Pound to Euro (GBP/EUR) exchange rate’s potential for gains. As of Thursday, the pair still trended below the week’s opening levels and could be on track for losses.
Friday’s Eurozone data includes Germany wholesale prices which are unlikely to be particularly influential. Instead, Euro investors are more likely to await next week’s Eurozone data.
Throughout next week, key data including Eurozone confidence stats and Markit’s February PMI projections will be published.