- Pound Sterling Euro Rate Climbs Near 1.13 – Highest levels in almost a month on Brexit news
- Bank of England Leaves Policy Frozen – Higher UK forecasts give GBP double-whammy of bullishness
- EUR Update: Eurozone’s Services PMI Disappoint – Scores fail to meet preliminary figures
- GBP Forecast: On Track to End Week Higher – Falls unlikely on Friday
Pound Sterling Euro Exchange Rate Ends Week Near Best November Levels
The Pound Sterling Euro exchange rate looked to end the week’s European session near its best levels since the beginning of October, as Sterling sentiment remained strong enough after Thursday’s rally to allow the British currency to easily continue its advance.
Sturdy sentiment for the Euro after the day’s news that the Eurozone’s economic growth was solid in October was not enough to hold Sterling’s advances at bay. UK markets continued to feel a little more optimistic about Brexit due to hopes of an MP vote on the activation of Article 50.
It’s worth noting though that the Pound’s bullishness from Thursday quickly shrank. While GBP advanced on Friday, it was comparatively flat meaning continued strong advances are unlikely on Monday or Tuesday.
Instead, the Euro will drive GBP EUR movement on Monday thanks to the day’s slew of influential Eurozone ecostats, as well as Monday’s nerve-wracking proximity to Tuesday’s US Presidential election.
(Previously updated 12:50 GMT 04/11/2016)
Pound Sterling Holds Ground Friday Morning
Despite failing to hold its best Thursday level, Sterling continued to edge higher on Friday morning as sentiment for the currency remained relatively cheery after Thursday’s Article 50 judgement.
The morning’s Eurozone service PMIs were unable to help the shared currency hold Sterling at bay either, as most figures failed to meet preliminary results.
However, ongoing weakness in the US Dollar as well as the fact that Germany’s service index had exceeded expectations helped the Euro to limit Sterling advances.
(Previously updated 8:54 GMT 04/11/2016)
Thursday’s session was big for 2016’s Pound Sterling Euro exchange rate, giving the Pound its biggest value rally in over a month as investors reacted to a High Court ruling that the UK Parliament should be allowed a vote on the activation of Article 50; the formal exit process from the EU.
GBP EUR gained over a cent in value on Thursday. While the pair initially trended near the week’s opening levels of 1.11, GBP EUR soared by over 1% to reach above 1.12 and continued to edge towards 1.13 at the time of writing. Can the Pound sustain this uptrend? Or is Sterling fated to give up its recent gains and return to historic lows?
Given that the Bank of England (BoE) is expected to cut interest rates in 2017 and government will contest the High Court decision, the outlook for Pound Sterling (GBP) exchange rate remains negative, but as it stands Sterling looks set to hold yesterday’s gains into the weekend.
Pound (GBP) Surges on Market Hopes for MP Vote on Article 50
The increasingly Brexit-correlated Pound Sterling was given its first major leg-up in quite a while on Thursday, as a court challenge to the government’s intention to activate Article 50 without Parliamentary consultation was decreed unconstitutional by three High Court judges.
This means that unless the government’s appeal to Supreme Court is won at a later date, British MPs will be given some kind of vote on the activation of Article 50.
To markets, this means Article 50’s activation could be delayed or that the terms of Brexit negotiations could be agreed in Parliament, increasing hopes of a more aggressive stance on Britain maintaining access to the European Union’s single market.
Sterling surged as a result, with the day’s Bank of England (BoE) news giving the Pound an additional boost in the afternoon, after the bank’s officials agreed unanimously to leave monetary policy frozen.
Despite speculation of further stimulus from the BoE in November, the unanimous result confirmed that Britain’s policymakers were confident the economy did not need further stimulus.
The bank also increased its UK growth forecasts for 2016 and 2017. Sterling saw its biggest advance since July in response to Thursday’s news, after months of limp trade.
Euro (EUR) Slips Despite Optimistic Eurozone Ecostats
The Euro Pound exchange rate had performed well this week up until Thursday, which saw the shared currency slip slightly against most of its major rivals as investors sold it from its recent highs and adjusted their positions in favour of safer currencies.
Most of the Euro’s recent strength had been due to its inverse correlation to the US Dollar. A large selloff in the US Dollar therefore led to bullish behaviour for the Euro.
However, as the Euro is not typically seen as a ‘safe haven’ currency, many traders moved on from EUR in favour of safer assets like the Japanese Yen (JPY) and Swiss Franc (CHF).
Despite Thursday’s poor Euro movement, sentiment for the shared currency remained generally solid, thanks in part to the week’s solid Eurozone ecostats.
After Wednesday saw Germany’s October employment results beating expectations considerably, Thursday’s key Eurozone unemployment rate for September also cheered some traders. The rate printed at 10.0% as expected, but August’s rate saw an improved revision from 10.1% to 10.0%.
Pound Sterling Euro Exchange Rate Forecast: Sterling Advances to Slow on Friday
The Pound’s sudden, sharp increase in value on Thursday is characteristic of GBP volatility since the Brexit vote, with the currency remaining vulnerable to news regarding the Brexit.
As a result, the currency’s bullishness is likely to fade on Friday and GBP may even be sold slightly from its highs as investors take profit from its Thursday surge.
Pressure for the Pound is likely in the mid to long-term future too, as the UK government has already indicated it will challenge the High Court ruling in the Supreme Court in December.
Not only this, but analysts agree that the ruling does not mean the chances of stopping the Brexit altogether have increased. Connor Campbell from Spreadex stated;
‘Even if it does go to a parliamentary vote, it is unlikely MPs will want to be seen as going against the referendum result by blocking the enacting of Article 50. Nevertheless the pound was due some good news, and it has certainly taken advantage of this brief glimmer of hope’
This means even if Sterling continues its advance, it may not last through next week. Instead, the Euro has more potential to drive movement on Friday if GBP trade cools.
Friday will see the publication of the Eurozone’s final October services PMI. As economists believe Italy’s services sector has outperformed preliminary projections, some will be hoping that overall Eurozone services and composite scores beat expectations.
Weakness in the US Dollar as the US Presidential election continues to draw near will also make the Euro an appealing buy for forex traders, meaning the Pound Sterling Euro exchange rate will remain pressured.