Homepage » Brexit » Brexit Starts Next Week, Pound Sterling Euro Exchange Rate Movement Mixed

Brexit Starts Next Week, Pound Sterling Euro Exchange Rate Movement Mixed

  • Pound Sterling Euro Exchange Rate Trends Near 1.15 – But down slightly from two-week-highs
  • Brexit is Imminent – UK government officially announces Brexit start date will be March 29th
  • UK Inflation Beats Expectations – But seemingly fails to change BoE stance
  • EUR ForecastEurozone PMIs Due Friday – How has economy performed in March?

Pound Sterling Euro Exchange Rate Sees Mixed Movement on Wednesday

The Pound Sterling Euro exchange rate briefly dipped to 1.14 on Wednesday afternoon, but by the end of the day was closer to the day’s opening levels once again.

This mixed movement in the Pound has been largely caused by investors cooling on the inflation rally seen earlier in the week. Sterling may have also been weakened by jitters that the Brexit process is set to finally begin a week from now.

Despite its brief slips, Sterling is likely to remain firm on Wednesday evening and Thursday morning as investors await the publication of Britain’s February retail sales results.

If the retail sector saw worse activity than expected in February, concerns will increase that Britain’s services sector could slow enough to negatively affect the nation’s 2017 growth.

[Previously updated 12:37 GMT 22/03/2017]

Wednesday trade saw little notable shift in the Pound Sterling Euro exchange rate. Sterling remained sturdy following Tuesday’s inflation-inspired rally, despite the increasing imminence of the Brexit process.

Wednesday’s data included the Eurozone’s January current account result, which fell from €46.9b to €2.5b. This had no notable effect on Euro trade, which was slipping anyway as it falls slightly from its strong performance earlier in the week.

GBP EUR spent most of Wednesday trending relatively flatly in the region of 1.15, near the week’s best levels.

Brexit jitters still have the potential to weaken the Pound over the next week as the process is set to formally begin on the 29th of March.

[Previously updated 16:36 GMT 21/03/2017]

Pound Sterling Euro Exchange Rate Bolstered by UK Inflation Data

The Pound Sterling Euro exchange rate returned to the week’s opening levels and occasionally tested weekly highs throughout Tuesday’s European session thanks to the day’s UK inflation stats, despite dovish comments from Bank of England (BoE) Governor Mark Carney.

However, GBP EUR was unable to capitalise on Tuesday due to strength in the Euro.

Some Eurozone political jitters subsided on Monday night following a televised debate between French presidential candidates. Anti-EU candidate Marine Le Pen was outperformed in the debates by pro-EU centrist Emmanuel Macron according to snap polls following the broadcast.

This news increased market hopes that Macron could win the second round of the election in May, keeping France in the Eurozone.

[Previously updated 12:42 GMT 21/03/2017]

Despite Monday’s Brexit jitters, the Pound Sterling Euro exchange rate put in a solid recovery on Tuesday after the day’s UK inflation stats came in well above expectations.

According to Britain’s February Consumer Price Index (CPI) results, inflation surged to 0.7% month-on-month and 2.3% year-on-year. This beat out forecasts of 0.5% and 2.1% respectively.

This initially increased Bank of England (BoE) tightening hopes. However, in an unrelated Q&A on banking standards on Tuesday, BoE Governor Mark Carney was asked about the spike in inflation.

He responded bluntly, suggesting that the BoE should not overreact to a single point of data. This dampened hopes for a more hawkish BoE and limited the day’s GBP/EUR gains.

[Published 06:00 GMT 21/03/2017]

The Pound Sterling Euro exchange rate slipped slightly from its recent highs on Monday after the UK government finally confirmed the start date for the Brexit process. The Euro was supported by lightening Eurozone political jitters.

GBP EUR began last week trending at a two-month-low of 1.13 but has since recovered to the level of 1.15. While the pair slipped slightly from this high on Monday, it remained well up on last week’s levels.

Pound (GBP) Slips as Brexit Begins on March 29th

Monday saw the UK government finally announce the day Article 50 will be activated to begin the formal Brexit process – the 29th of March. This led to a slip in Sterling later in the day.

UK Prime Minister Theresa May had previously announced that Article 50 would be activated by the end of March. Monday’s announcement indicated that things were going just as May’s government had planned.

In the months since the Brexit vote last year, many Pound investors had been hoping that the approach to the Brexit process would become softer or that official negotiations would be delayed further.

However, in recent weeks reality has begun to set in as the Brexit bill made it through the UK Houses of Parliament. This has led to some volatility and occasional weakness in Sterling.

However, Sterling losses were limited due to last week’s Bank of England (BoE) news, and increasing hopes that higher UK inflation stats could pressure the BoE into tightening UK monetary policy in the coming months.

Analysts at MNI stated;

‘[The] market is now pricing in a 44% chance of a 25bp rate hike in Nov 2017, up from 25% last Monday as Kristen Forbes calls for a 25bp rate hike due to rising inflation and better growth, while there was some hawkish undertones from some other members in the MPC minutes as well.’

Last week saw BoE policymaker Kristin Forbes unexpectedly vote for a rate hike against eight others voting for a freeze, with the surprising split improving the short to long-term Pound outlook.

Euro (EUR) Solid as Eurozone Political Concerns Lighten

Despite a lack of influential data published on Monday, the Euro performed solidly throughout the day due to last week’s Netherlands’ election result and French election polls published over the weekend.

The 2017 French Presidential Election is shaping up to be one of the most influential events of the year for the Euro and will be held across April and May.

The shared currency has slumped in recent months due to rising concerns that anti-EU French Presidential candidate Marine Le Pen could win the election.

Le Pen has stated on multiple occasions her intention to pull France out of the Euro bloc. For most of early-2017 she has been the gamblers’ favourite to win the first round of the election in April. This has left the Euro on edge.

She would then, according to polls, likely be faced off against centrist candidate Emmanuel Macron in the second round in May, which Macron is projected to win comfortably.

Polls published over the weekend indicated that Macron was also gaining on Le Pen’s first-round numbers however, with the two now seemingly neck-and-neck.

Pound Sterling Euro Exchange Rate Forecast: UK Inflation Stats in Focus

Following last week’s Bank of England (BoE) news and subsequent increase in hopes for tighter UK monetary policy, Tuesday’s UK Consumer Price Index (CPI) results from February will be highly influential.

Consumer prices are forecast to increase from -0.5% to 0.5% month-on-month, and from 1.8% to 2.1% year-on-year.

This would take UK inflation to the BoE’s target of 2%, but the bank has stated in the past that it does not consider inflation caused by Sterling’s drop in value as underlying inflation in Britain.

Regardless, if UK inflation comes in higher than expected, analysts believe it will put even more pressure on the BoE to tighten monetary policy in in order to combat it. This would also lead to an increase in demand for the Pound.

Euro trade will be comparatively quiet tomorrow. Tuesday is lacking in influential Eurozone ecostats, which will leave the shared currency reacting to Eurozone political news and the strength of the Pound until later in the week.

As a result, the Pound Sterling Euro exchange rate could easily hit new weekly highs on Tuesday if UK inflation impresses.