- UK Pound Rallies – Recent EU referendum poll gives ‘Remain’ a 13-point advantage
- Euro Struggles – US Dollar strength weighs
- Sterling Volatility Continues – ‘Brexit’ uncertainty continues to drive changes
- GBP/EUR Exchange Rate Forecast to Hold Gains – BoE Speeches support ‘remain’
GBP/EUR Exchange Rate Extends Gains
On Wednesday morning the Pound Sterling to Euro (GBP/EUR) exchange rate edged higher by around 0.2% before surging as trading continued, with the pairing briefly pushing above the 1.32 level.
The UK Pound continues to strengthen in response to easing ‘Brexit’ concerns as more financial institutions warn of the danger of leaving the EU. The Institute for Fiscal Studies (IFS) stated that austerity measures would nee to be extended by at least two years if the UK votes to ‘Brexit’.
The single currency, meanwhile, edged higher versus some of its rivals in response to positive German ecostats. However, comparative US Dollar strength continues to limit the appeal of the common currency.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3172 but could fluctuate following the publication of the UK’s latest growth data.
(Previously Updated 16:54 24/05/16)
Despite data showing that the British Government borrowed more than had been expected, the UK Pound advanced versus all sixteen of its most actively traded peers. April’s Public Sector Net Borrowing was forecast to drop from 6.1 billion to 5.8 billion, but the result actually showed borrowing rose to 6.6 billion.
The Sterling appreciation was the result of a fresh EU referendum opinion poll from ORB that gave the ‘Remain’ campaign a thirteen-point lead over the ‘Leave’ campaign. In his Telegraph article, Sir Lynton Crosby writes:
‘The Remain campaign, according to the latest ORB Telegraph poll, continues to strengthen its position among voters with another week of effective campaigning while the Leave campaign dwindles, having failed to quell ongoing concerns about the financial and economic consequences of a Brexit. This week’s ORB poll suggests that the Remain campaign is beginning to really work. Its vote share has risen by three points to 58 per cent among all voters, opening up a sizeable 20-point lead. When taking into account likelihood to vote, Remain’s position has improved by four points to 55 per cent while Leave has fallen by three points to 42 per cent amongst definite voters.’
Also supportive of Sterling appreciation was speeches from Bank of England (BoE) Governor Mark Carney and other policymakers. Once again, Carney held to the view that a ‘Brexit’ could cause a technical recession and the UK economy is likely to suffer from the initial shock.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3125.
Euro (EUR) Exchange Rates Struggle despite Positive Q1 German GDP Growth
German Gross Domestic Product growth expanded by 1.6% in the first-quarter, equalling the market consensus. The robust rate of growth was due to the fastest investment growth in two years. Whilst the headline figure was impressive, however, most analysts predict that the German economy will face a significant slowdown in the second-quarter.
‘Growth was broad-based, with private consumption and construction investment shouldering a great share,’ said Johannes Gareis, an economist in Frankfurt. ‘Looking to second-quarter growth, we think the German economy is unlikely to repeat the blockbuster performance seen in the first quarter, also due to some payback from the boost to construction investment from mild weather.’
Weighing heavily on demand for the Euro today, however, is US Dollar strength as Federal Reserve rate hike bets improve. While low expectations for a June hike weighed on the US asset during yesterday’s European session, most analysts are still convinced that policymakers will hike the official cash rate at least twice this year.
Adding to Euro headwinds were mixed results from ZEW surveys. Both Eurozone and German Economic Sentiment declined beyond expectations, but the German ZEW Current Conditions survey advanced from 47.7 to 53.1, showing an increase in positive assessment.
The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.2898.
GBP/EUR Exchange Rate Forecast to Hold Gains
Given that the speeches from Bank of England (BoE) Governor Mark Carney and other policymakers to Parliament reiterated concerns regarding ‘Brexit’ , the GBP/EUR exchange rate is likely to hold gains given the extent of the current appreciation. Additionally, US Dollar strength is likely to limit the appeal of the single currency.
With a complete absence of British ecostats on Wednesday, the GBP/EUR exchange rate will see volatility in response to German IFO reports. In addition, EU referendum developments and US Dollar strength will drive GBP/EUR exchange rate movement.
There is, however, potential for Sterling losses during Wednesday’s European session. This is because the massive Sterling gains seen today will open up attractive selling opportunities for traders.
The Pound Sterling to Euro (GBP/EUR) exchange rate reached a high of 1.3127 during Tuesday’s European session.