- Pound Euro Exchange Rate at 1.18 – GBP EUR recovers around half of last week’s losses
- UK Growth Disappoints – Britain’s economy could slow in 2017
- GBP Forecast: Markit’s April UK PMIs Ahead – Strong services data could help Pound recover
- EUR Forecast: Eurozone Unemployment and Growth Due – As well as final April PMIs
Last week saw the Pound Euro exchange rate plummet as investors reacted to the results of the first round of the French Presidential elections. UK data also disappointed, limiting the pair’s late-week recovery.
GBP EUR began last week trending at the level of 1.19. After plummeting to a two-week-low of 1.17, the pair had recovered to the level of 1.18 by the end of the week.
Pound (GBP) Strength Limited by Disappointing UK Growth Data
Demand for the Pound has remained solid since UK Prime Minister Theresa May announced there would be a general election on the 8th of June.
Investors have been hoping that a bigger Conservative majority in Parliament could make the Brexit process smoother and increase the chances of a good UK-EU deal.
This has helped the Pound Euro exchange rate to advance on days of weaker Euro trade. However, later in the week Sterling’s recovery was held back by concerning UK growth stats.
Britain’s Q1 Gross Domestic Product (GDP) projections were published on Friday and failed to meet expectations. Yearly growth improved from 1.9% to 2.1%, missing the forecast 2.2%. Quarterly growth slipped from 0.7% to 0.3%, below the expected 0.4%.
Investors reacted to the growth news with concern as it followed a recent slowing in retail sales. It added to the pile of evidence that Britain’s vital services sector is slowing as consumers held back spending due to rising inflation and slowing wage growth.
Significantly, analysts at Barclays believe the slower growth pace indicates that the Bank of England (BoE) may avoid tightening UK monetary policy until 2019;
‘In our view, given rising inflationary pressures and the increasing likelihood of negative real wage growth in the coming months, household consumption will continue to ease over the course of 2017. All in all, we believe this strengthens our view that the Bank of England MPC will leave its monetary policy stance unchanged over our forecast horizon (until end-2018).’
Investors remained relatively optimistic on the Pound, but more downcast data like this could weigh heavier and heavier on Sterling’s outlook.
Euro (EUR) Strengthens on Election Hopes and Inflation Stats
The Euro had a strong week last week overall, making significant gains against the Pound and other majors due to market excitement that pro-EU Emmanuel Macron had performed well in the first round of the French election.
While the shared currency weakened significantly on Thursday due to a dovish tone from the European Central Bank (ECB), the week’s data was strong and markets were generally optimistic on the currency’s outlook.
Friday saw the publication of various Q1 growth projections from the Eurozone, as well as the Eurozone’s April inflation projections.
While French growth failed to meet expectations, Spanish growth impressed and the Eurozone’s inflation stats also beat expectations.
Eurozone consumer prices were expected to improve from 1.5% to 1.8% in April, but instead improved to 1.9%, which some investors are hoping will put additional pressure on the ECB to consider tightening monetary policy.
Pound Euro Forecast: French Election Finale Approaches
The Pound Euro exchange rate has strong potential to advance next week, as Euro investors will become increasingly jittery ahead of the second round of the French Presidential election on the 7th of May.
Pro-EU candidate Emmanuel Macron has been slipping in second round opinion polling in the last week, falling from a lead of over 60% to 59% according to Presitrack polls published at the end of last week.
Concerns that anti-EU Marine Le Pen could win the election and withdraw France from the Eurozone in a ‘Frexit’ are likely to worsen throughout the week. Last year’s surprising Brexit and Trump votes may keep investors from being too optimistic, so Euro volatility is likely.
Key data will be published throughout the week though and will be the primary cause of Pound movement.
Markit will publish its April UK PMIs throughout the week, though investors are unlikely to move much on the Pound until Thursday’s services data is published.
If UK services fall short of expectations again, concerns will worsen that Britain’s economy is slowing down.
Markit will also publish its final April PMIs for the Eurozone throughout the week.
Tuesday will see the publication of the Eurozone’s March unemployment data. German unemployment from April and Eurozone GDP for Q1 will be published on Wednesday. Lastly, Eurozone retail sales stats from March will be published on Thursday.
However, while Eurozone data also has the potential to inspire the Pound Euro exchange rate slightly it will likely take a back seat to political moves.