Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Soften despite Better-than-Expected Eurozone Unemployment
With the ‘Panama Papers’ leak dominating trader focus, the Euro to Pound Sterling (EUR/GBP) exchange rate declined by around -0.4% on Monday afternoon.
In what can be considered the biggest information leak in modern history, Panama-based law firm Mossack Fonseca has seen secretive operations dating back 40 years exposed to the world. The operations include tax avoidance and have led to allegations of money laundering being aimed at prominent world figures including global leaders and government officials. Some major banks are also mentioned in the exposure.
As a result of the mounting uncertainty as to how much of an impact these documents will have, safe-haven demand caused the US Dollar to strengthen versus most of its major peers. Thanks to negative correlation, the single currency declined in response.
European domestic data produced mixed results. Whilst February’s Eurozone Unemployment met with the market consensus of a drop from 10.4% to 10.3%, Belgium’s Unemployment Rate in the same period saw a massive unwanted gain from 7.9% to 8.6%. A drop in Spanish Consumer Confidence in March also oiled the Euro downtrend.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7977.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hold Gains on Construction Output
Although the ‘Panama Papers’ leak does include a number of British officials, the news had minimal impact on demand for the British Pound. This is most likely the result of traders feeling that the recent Sterling depreciation was already enough.
Also supportive of GBP gains was better-than-anticipated construction output data. March’s Construction PMI was predicted to drop from 54.2 to 54.1, but the actual result held at 54.2. However, as Tim Moore, Senior Economist at Markit stated;
‘March’s survey confirms that the UK construction sector is experiencing its weakest growth phase since the summer of 2013. Residential building has seen the greatest loss of momentum through the first quarter of 2016, which is a surprising reversal of fortunes given strong market fundamentals and its clear outperformance over the past three years.’
The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7957 during Monday’s European session.
EUR/GBP Exchange Rate Forecast: Political Uncertainty to Weigh on UK Pound
Given the mounting political uncertainty as a result of the UK steel crisis and the forthcoming EU referendum vote, there is a high chance that the Euro to Pound Sterling (EUR/GBP) exchange rate will resume appreciation as the week progresses.
With that said, if the US Dollar continues to strengthen in response to safe-haven demand the Euro may struggle to maintain any significant uptrend.
There will be a number of data publications with potential to cause GBP/EUR exchange rate volatility on Tuesday. For those invested in the single currency, German Factory Orders and the US Non-Manufacturing Composite should provoke changes.
For those trading with the British Pound, the Services and Composite PMIs should be of significance. If the services sector shows signs of weakness the UK Pound is likely to dive as troubling sectoral growth weighs on Gross Domestic Product outlook.
The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.8016 during Monday’s European session.