GBP EUR extended its highs on Tuesday afternoon as the UK House of Lords began the second day of Article 50 debates.
This left the Pound Euro exchange rate trending above the key level of 1.18 once again – a level it has struggled to hold since December 2016.
The day’s Eurozone data gave Euro investors plenty to be optimistic about, but political concerns weighed heavier.
Germany’s preliminary February manufacturing PMI increased from 56.4 to 57, while the composite print rose from 54.8 to 56.1.
As many member states’ PMIs beat expectations, the overall Eurozone prints came in strongly too. Services printed at 55.6 and manufacturing at 55.5. The composite print for the bloc improved from 53.7 to 55.6.
[Previously updated 12:42 GMT 21/02/2017]
The Pound to Euro exchange rate continued to advance on Tuesday. While it initially trended flatly near Monday’s highs, the day’s data left GBP in demand again.
Britain’s January public sector net borrowing results improved from -£4.24b to £9.82b, the biggest surplus since 2000. This increased investor hopes that public borrowing wouldn’t worsen during the Brexit process in 2017.
This helped the Pound gain against a weak Euro.
While the day’s Eurozone PMIs were largely impressive, Monday evening’s news that nationalist French Presidential candidate Marine Le Pen was advancing in polls left demand for the shared currency weak throughout Tuesday.
GBP EUR is forecast to hold its highs for the rest of the day unless the House of Lords disappoints during its Tuesday Article 50 debates.
[Previously updated 16:24 GMT 20/02/2017]
As the House of Lords begun debating the Article 50 bill on Monday afternoon, analysts doubted that any major amendments would be made in this week’s discussions.
This caused GBP EUR to slip slightly from its best Monday levels, but the pair still looked to gain over 0.3% on the day and trend comfortably above the level of 1.17.
Tuesday’s session will see Pound and Euro traders reacting to domestic data. Britain’s January public sector net borrowing figures will be published, as well as Markit’s preliminary February PMIs for the Eurozone.
Even if Eurozone PMIs impress investors however, the shared currency may remain weighed down by ongoing concerns about the popularity of nationalist parties in the Eurozone.
[Previously updated 12:53 GMT 20/02/2017]
After slipping last week, the Pound to Euro exchange rate recovered most of its recent losses on Monday morning as investors were optimistic to potential amendments to the Article 50 bill from the House of Lords.
The House of Lords will debate on the Article 50 bill on Monday and Tuesday. On Sunday, a Labour member of the House, Peter Mandelson, stated he believed peers in the House of Lords would fight for the rights for EU citizens already living in the UK.
This increased hopes that less businesses or workers would be affected by the Brexit both in the UK and overseas.
However, if the House of Lords makes no amendments, Sterling could quickly give up most of its Monday gains.
[Published 06:00 GMT 20/02/2017]
Last week saw the Pound weakened by a slew of disappointing UK ecostats. This allowed the Euro to advance against Sterling in the late-week despite a lack of strong supportive factors in the shared currency.
Throughout the week, Britain’s latest economic data indicated that UK citizens may be in for a tough time financially in 2017. This of course means less activity in consumer sectors.
Britain’s consumer sectors are some of the biggest contributions to the nation’s Gross Domestic Product (GDP). If retail sectors struggle, the country’s growth is likely to slow considerably.
This was the narrative analysts were promoting after last week’s UK data.
Britain’s Consumer Price Index (CPI) rose in January and analysts predict inflation will gain even further in the coming months. Some even predict CPI will reach 3% by the end of the year.
Meanwhile, UK wage growth slowed in the final quarter of 2016. Lower wages and higher consumer prices led many to believe that consumers would begin to rein in spending in the retail sector soon.
Sure enough, when Britain’s January retail sales results were published on Friday, they were far worse than forecasters expected, indicating that consumers were already being more conservative with their cash.
Year-on-year retail sales slowed to 1.5%, missing the projected 3.4%. The latest report also saw the previous figures revised lower from 4.3% to 4.1%.
Meanwhile, month-on-month retail sales contracted -0.3% and the previous figure saw a revision from -1.9% to -2.1%.
Andrew Sentance, economic adviser from PwC commented on the retail sale drop;
‘In 2015 and the first half of last year, falling prices on the high street and at the petrol pump boosted the volume of retail spending. Shop and motor fuel prices were falling by 2.5% to 3% a year over this period and this supported 4.5%-5% growth in the volume of retail sales.
By contrast, this January we have seen a rise in prices in the retail sector – which are now nearly 2% up on a year ago. Not surprisingly this change in the inflationary trend has squeezed the growth in the volume of retail spending to just 1.5% compared with last year.’
Due to this thoroughly gloomy outlook, the Pound was sold against the Euro towards the end of the week. This saw GBP EUR fall back down to the level of 1.16 on Friday.
The Euro was able to benefit from the Pound’s weakness as it was bought up from its lowest levels following a 2017 high of 1.18 earlier in the week.
However, the shared currency also benefitted from last week’s news that the EU-Canada trade deal, CETA, had finally passed through European Parliament.
Investors now anticipated stronger trade ties between the EU and Canada, despite recent concerns that the US would weaken trade with both nations under the relatively protectionist Trump administration.
Last week was a busy one for GBP EUR traders, but the coming week will be comparatively calm as the week’s economic calendar is set to be relatively quiet.
Britain’s preliminary Q4 2016 Gross Domestic Product (GDP) results are the main event in the coming week. However, as this data was collected before 2017 it will not yet show the effects of January’s inflation and low retail sales.
Next week will also see the publication of Britain’s January public sector net borrowing results. These will come in on Tuesday. If borrowing is worse than expected, concerns will worsen about how much the UK government will need to borrow during the upcoming Brexit process.
Speaking of Brexit, the UK House of Lords will be giving the Article 50 bill some final scrutiny on Monday. If any amendments are made to the bill the Pound is likely to react.
Next week’s GBP EUR movement is more likely to be driven by the Euro, as analysts will be looking at Tuesday’s preliminary February Eurozone PMIs to forecast how strong the Eurozone economy has been this month.
Various confidence results will also be published. Eurozone consumer confidence will come in on Monday, followed by Germany’s business confidence prints from IFO on Wednesday.
Wednesday will also see the publication of the Eurozone’s final January inflation results. If these beat expectations it could increase hopes that inflationary pressures are improving in the bloc, even if the European Central Bank (ECB) remains dovish on price growth.
Germany’s final Q4 growth figures will be published later in the week, as well as the latest German trade data.
The Pound to Euro exchange rate could recover from last week’s losses if this week’s key Eurozone data disappoints traders.