The Pound Sterling to Euro (GBP/EUR) exchange rate has taken hits from both sides over the last few days as bad news batters the European Union – however increased ‘Brexit’ bets seem to have left the Pound as the weaker currency.
‘Brexit’ Bets Up after Brussels Attacks Instil EU Fear – Pound Volatility at Six-Year High
The Pound has suffered throughout the week, falling across the board in many of its pairings due to frustration towards George Osborne’s 2016 Budget and, more recently, increased worries that a ‘Brexit’ could occur in late June. The GBP/EUR pair currently trends steadily at 1.2626 after hitting its lowest point since 2014, 1.2591, earlier this morning.
Even positive UK data, the last batch of the week, seems unable to deter Sterling from its current weakness. British retail sales data for February was released earlier, with all numbers printing higher than forecast and year-on-year data coming in above 0%. Year-on-year retail sales grew by 4.1%, and auto fuel sales went up by 3.8%, despite predictions of only 3.4% and 3.5% respectively.
Unfortunately, this week’s domestic news has hit the Pound much harder than this optimistic data is able to withstand. The historic EU Referendum vote is now less than three months away, taking place on the 23rd of June.
The reminder of the vote’s imminence has inspired bearish movements in investors as they shy away from Sterling’s increasingly uncertain future.
Bets that UK could indeed vote to leave the European Union (EU) increased throughout the week after tragic terrorist attacks in Belgium’s capital, Brussels. Brussels, also the location where most EU-related meetings are held, was shaken during the attack that reportedly killed over 30 people.
Due to increased fear and panic among the public in the face of the attacks, anti-EU sentiment has increased amongst some British residents and the campaign to ‘remain’ in the EU has seen slightly diminished numbers.
Voting to ‘Brexit’ from the EU in June would leave the UK with an uncertain economic future in the global market and the need to re-establish age-old trade partnerships. Investors have little to no faith in an EU-less Pound as it reaches a six-year high level of volatility against the Euro.
European Central Bank (ECB) Officially Reminds Investors that Further Easing is Possible
After stepping up stimulus in March, the European Central Bank officially mentioned during a bulletin released this morning that further stimulus measures to bolster the Eurozone economy and weaken the Euro are still possible in the short to medium-term.
During its key rate decision announcement on the 10th of March, the ECB announced severe measures to weaken the Euro and stimulate the economy, including an interest rate cut and a loftier quantitative easing goal.
However, ECB President Mario Draghi stated shortly after the announcement that further easing was unlikely and that the central bank had used up all its means. This speech caused unwanted bullish behaviour in investors and has prompted the central bank to take damage control measures since.
This morning, the ECB’s official bulletin mentioned that while Eurozone economic growth is still expected to gradually improve in the years through to 2018, the movements will likely be slow and dovish.
Investors are also reminded that, as hinted by other policymakers since the 10th, the ECB does in fact still have further easing measures to put in place if necessary.
The bulletin has already caused its intended Euro weakening, however it seems unlikely to outpace Sterling’s more impressive weakness.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: ‘Brexit’ Concerns Only Likely to Increase From Here
With less than three months until the EU Referendum and the series of easy confidence knocks the Pound has experienced in recent weeks likely to continue, it seems Sterling will be largely unable to maintain strength for long periods of time. Until the historic vote has taken place, investors are unlikely to take a concrete stance on the outcome and Pound volatility could increase.
The ECB’s continued attempts to ease the Eurozone economy and weaken the Euro seem likely to have a similar effect, and if the Euro is not seen to be weakening satisfactorily due to global developments the central bank may be forced to take additional measures.
Vital Eurozone data is due for release next week, including the latest German CPI and unemployment prints, as well as general Eurozone CPI and unemployment data.
UK data is a little less eventful next week, however updated prints for GDP and Manufacturing PMI are due. However, any strength given to Sterling by positive data or negative Eurozone data is likely to be temporary as April’s approach is likely to bring continued ‘Brexit’ anxieties.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2626 while the Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7920.