A surprise increase in demand for the Euro throughout Thursday’s European session left the Pound to Euro exchange rate trending with a downside bias near the week’s opening levels of 1.17.
Demand for the Euro was also solid throughout Thursday as analysts became increasingly hopeful that the EU and Greece would be able to smoothly proceed to the next stage of debt relief talks.
It was also confirmed this week that the controversial CETA trade deal between Canada and the European Union was passed through European Parliament. This increased demand for the Euro throughout Thursday.
With a lack of fresh supportive factors in GBP trade, investors adjusted their positions ahead of Friday’s anticipated UK retail sales results.
If British retail sales failed to meet expectations in January, it will increase market concerns that lower retail spending from consumers throughout 2017 will dampen UK growth.
[Previously updated 12:36 GMT 16/02/2017]
The Pound to Euro exchange rate failed to see a substantial recovery on Thursday morning despite a lack of fresh ecostats giving the Pound some breathing room.
The Euro remained sturdy against the Pound’s recovery efforts as investors bought the shared currency back up from its recent losses against the US Dollar (USD).
At the time of writing, GBP EUR trended near the week’s opening levels again – in the region of 1.17. The pair had lost the majority of its weekly gains.
Comments from a French senate report also weighed on the Pound’s strength against the Euro. The report indicated France’s position on Brexit – that Britain must not leave the EU with a better deal than it has now.
[Previously updated 16:38 GMT 15/02/2017]
While its losses slowed towards the end of the European session, the Pound to Euro exchange rate saw modest losses throughout the day in response to the day’s UK wage results.
GBP EUR could have seen further losses if Euro support had been stronger. However, poor Eurozone data this week and a strong US Dollar (USD) severely limited the shared currency’s gains against the Pound.
Thursday trade is also likely to be modest, due to a lack of fresh influential ecostats from Britain or the Eurozone.
Unless new Brexit details emerge, or Eurozone political concerns hit headlines, investors will continue to look ahead to Friday’s session.
Friday will see the publication of Britain’s January retail sales results, which will go hand in hand with this week’s news that UK consumer prices are surging but wage growth may struggle to keep up in 2017.
[Previously updated 14:01 GMT 15/02/2017]
The Pound to Euro exchange rate spent most of Wednesday’s European session edging lower due to poor UK wages data.
However, GBP EUR remained comfortably above the week’s opening levels due to underlying weakness in the Euro. A lack of fresh supportive data or news on Wednesday left the Euro vulnerable.
[Previously updated 10:46 GMT 15/02/2017]
With the UK’s latest employment report detailing an unexpected decline in average earnings, the Pound to Euro exchange rate extended losses during Wednesday’s European session.
It had been forecast that average earnings would hold at 2.8%, but they actually slipped to 2.6%. This was particularly concerning in light of the fact that UK inflation recently hit its highest level since 2014. Stagnant wages and a higher cost of living is likely to inhibit consumer spending and weigh on the UK’s economic outlook.
According to The Guardian; ‘Today’s report also shows that real wage growth in the UK economy has now fallen to a two-year low, putting more pressure on households. That’s because average earnings only rose by 2.6% in October-December, while inflation averaged 1.2% over the quarter (and has climbed to 1.8% since!). The TUC is urging the government to take more action – including ending the pay squeeze on public sector workers.’
[Previously updated 08:00 GMT 15/02/2017]
Wednesday’s European session will see the publication of various UK job stats, including January’s jobless claims update and employment figures from the three months into December 2016.
If these fail to impress traders, the Pound to Euro exchange rate could see its Tuesday losses extended as investors continue to fear that Britain’s economy will not perform as well in 2017 as hoped. The main result investors will be concerned with is the average earnings figure. If wages don’t climb but inflation continues rising, the rate of consumer spending may slow – and so far the services sector has been the driving force behind the UK’s better-than-expected performance post-referendum.
As it stands, weekly earnings including bonuses are expected to hold at 2.8%.
Tuesday saw the publication of many key UK and Eurozone ecostats. Britain’s January Consumer Price Index (CPI) report was the most influential of the day for GBP EUR traders.
Investors were hoping for UK inflation to improve to 1.9% year-on-year; a figure they hoped would pressure the Bank of England (BoE) into tightening UK monetary policy.
However, UK inflation only improved from 1.6% to 1.8%. This was highly disappointing to investors and indicated that UK price pressures were not increasing as much as projected.
As the latest increase in inflation did not improve BoE tightening bets, it instead caused analysts to grow concerned that the spike in prices could harm Britain’s economy.
Tom Stevenson from Fidelity International gave a worrying outlook about the squeeze UK households may face as a result;
‘With Britain seemingly heading for a hard Brexit, it’s likely we will see the pound continue to wobble over the next two years, resulting in higher inflation in the short term. Indeed, price rises are expected to reach 2.8% by the end of the year.
With inflation forecast to exceed the Bank of England’s target this year, still slow wage growth and Mark Carney showing no intention of raising rates any time soon, millions of households will begin to feel the financial squeeze in their pockets. Rising prices and relatively stagnant incomes are a painful combination.’
Analysts predict this squeeze on UK consumers will lead to lower consumer spending in the coming months. This will have an adverse effect on UK growth, particularly Britain’s vital services sector.
This is why the Pound to Euro exchange rate plunged on Tuesday, despite the day’s key Eurozone ecostats failing to meet expectations.
Preliminary German Q4 GDP came in at 1.2% year-on-year and 0.4% quarter-on-quarter, missing forecasts of 1.7% and 0.5% respectively.
As a result, the Eurozone’s yearly GDP figure failed to improve to 1.8%, remaining at 1.7%. Quarterly growth in the bloc only improved from 0.3% to 0.4%, missing the projected 0.5%.
February’s economic sentiment index prints from ZEW also disappointed. German economic sentiment dropped from 16.6 to 10.4, while the Eurozone’s slumped from 23.2 to 17.1.
This slew of underwhelming data weighed on the Euro’s strength on Tuesday. Despite this, the shared currency was able to register solid gains against the Pound. Investors perceived the GDP results as being widely within expectations and they still illustrated that the bloc was in a period of solid growth.
GBP EUR spent most of Tuesday’s session back down at the level of 1.17 as a result, failing to hold its high of 1.18.
The day’s other Eurozone data also supported the Euro. Italy’s Q4 GDP results were generally optimistic. The nation’s yearly growth beat expectations at 1.1%, while quarterly growth met expectations of 0.2%.
The Eurozone’s December industrial production results were also decent. Yearly production slowed from 3.2% to 2%, avoiding a drop to 1.7%.
With Tuesday’s Eurozone data mixed and the rest of the week relatively quiet for Eurozone data, Sterling will likely be driving GBP EUR movement for the rest of the week as Euro trade becomes limp.
Besides the UK’s job reports coming in on Wednesday, Britain’s January retail sales results due Friday will also influence the Pound.
Sterling will likely end the week below opening levels against the Euro if all of these UK reports disappoint as Tuesday’s UK inflation print did.
France’s Q4 unemployment rate may give the Euro a boost later in the week if it improved from 10% to 9.7% as forecast.
This week’s upcoming meeting between G20 finance ministers also has high potential to influence Euro movement, particularly if the future of the Euro amid growing political concerns is addressed.
Euro investors have become increasingly concerned in recent months that populist, nationalist politicians could withdraw nations from the Eurozone if they win Eurozone elections this year.
The seemingly growing popularity of French far-right Presidential candidate Marine Le Pen has been particularly concerning to traders this week.