Pound to Euro Exchange Rate Recovery Limited Ahead of Key Datasets
Last week, market fears about the seemingly higher possibility of a ‘no deal’ Brexit caused the Pound Sterling to Euro (GBP/EUR) exchange rate to plunge, though the pair was able to recover about half of its losses before markets closed for the week.
GBP/EUR opened last week at the level of 1.1237 and spent most of the week tumbling, touching on an 11-month-low of 1.1083 on Thursday morning before rebounding.
GBP/EUR ultimately closed the week at the level of 1.1187 – still around half a cent below last week’s opening levels. Since markets opened on Monday, GBP/EUR has tested higher levels but has generally trended near the opening levels.
While some investors opted to buy the Pound (GBP) back from its worst levels, the main reason for the GBP/EUR recovery since Thursday has been due to weakness in the Euro (EUR).
Investors have been selling the shared currency amid concerns that Eurozone banks could be negatively impacted by the economic crisis in Turkey.
Pound (GBP) Exchange Rate Appeal Remains Muted as ‘No Deal’ Brexit Jitters Persist
While Pound performance has improved since last week, the British currency isn’t exactly strong either and its recovery has been highly limited due to considerable uncertainties and concerns regarding Britain’s economic outlook.
Amid broad concerns that UK-EU Brexit negotiations may end without an agreement on a post-Brexit trade deal, or that a Brexit deal may fail to pass through UK Parliament due to fissures within the government, markets have become concerned about a possible ‘no deal’ Brexit.
Uncertainties about how the Brexit process will impact UK businesses have been dampening UK economic activity for months already and these ‘no deal’ Brexit fears have only worsened as next March’s Brexit date approaches.
Friday’s UK Gross Domestic Product (GDP) growth report did little to change this. The Q2 growth projections met forecasts, but June’s monthly growth figure fell short of expectations with a result of 0.1%.
The data generally justified the Bank of England’s (BoE) recent interest rate hike, but investors remain anxious about how Brexit uncertainties are impacting economic activity.
Euro (EUR) Exchange Rates Undermined by Turkey Financial Crisis
Towards the end of last week, Turkey’s weakening currency, the Turkish Lira (TRY), fell into a constant plummeting trend that continued when markets opened on Monday – despite attempts from Turkey’s government to quell it.
Turkey has seen surging inflation in recent months, but not higher interest rates to match. The nation has also seen worsening diplomatic tensions with the US.
As a result, the Turkish Lira has fallen so much that analysts fear a full blown currency crisis may be possible.
Due to the Eurozone’s relatively close trade ties with Turkey, the Turkish Lira’s broad weakness has caused concern that Eurozone banks may be impacted. As a result, the Turkish crisis has caused investors to sell the Euro.
As the Turkish crisis appears to worsen, investors are becoming hungrier for ‘safe haven’ currencies like the US Dollar (USD) too. As the US Dollar has a negative correlation against the Euro, this has also led to Euro weakness.
Essentially, the Euro is unappealing due to the plummeting Turkish Lira and the strong US Dollar rather than any Eurozone news.
Pound to Euro (GBP/EUR) Forecast: Eurozone Growth Stats in Focus
The Euro may find most support in data in Tuesday, as a slew of notable Eurozone ecostats will be published. If the day’s UK data disappoints or if ‘no deal’ Brexit fears persist, the Pound to Euro (GBP/EUR) exchange rate could weaken again.
Tuesday will see the publication of Q2 Gross Domestic Product (GDP) growth projections from Germany and the Eurozone, as well as July Consumer Price Index (CPI) inflation data from Germany and France.
If the day’s Eurozone growth or inflation figures impress investors, the Euro could see stronger demand and this would keep pressure on GBP/EUR.
However, if they disappoint or it the day’s UK job market results come in well above expectations, GBP/EUR could continue to recover.
Of course, developments in Turkey’s ongoing currency woes will prove influential too, especially if there are any surprising development.
Meanwhile, developments in Brexit negotiations or the perceived chances of a ‘no deal’ Brexit will continue to influence the Pound to Euro (GBP/EUR) exchange rate throughout the week too.