- Pound Euro Exchange Rate Forecast to Remain Pressured – Brexit anxiety remains high
- Sterling (GBP) Bought from Lows on Thursday – Unable to advance a cent against Euro
- Euro Slips as Investors Seek Riskier Assets – Poor data also undermines shared currency
- Forecast: Conservative Leadership Campaigns Begin – May and Leadsom begin campaigning
- Forecast: Bank of England (BoE) Decision Ahead – Next Thursday to be big for UK economy
Pound Euro Exchange Rate Ends European Session Above 1.17
After fluctuating widely on its advances, the Pound Euro exchange rate appears to have held its ground above the key level of 1.17 as Friday’s European session drew to an end.
At the time of writing, GBP/EUR was trending widely in the region of 1.1745. Sterling capitalised on Friday’s relatively calm market to enjoy a relief rally it begun to attempt during Wednesday’s session.
With the second full week since the Brexit vote now ending, markets look ahead to next week which will see the Bank of England (BoE) finally making its first post-Brexit interest rate decision.
Analysts have predicted there is a 78% chance of an interest rate cut during next Thursday’s meeting. An interest rate cut from the UK’s current record-low of 0.50% would be made with the goal of staving off Brexit damage to the UK economy, but would send GBP/EUR plummeting.
In the unexpected event that the bank chooses to leave rates frozen, Sterling would likely enjoy a strong but temporary relief rally across the board.
(Previously updated 15:14 BST 08/07/2016)
Pound Euro Exchange Rate Climbs 0.5%
As the European session progressed on Friday, the Pound Euro exchange rate advanced to a high of 1.1739.
The pairing rallied over 0.5% on the day’s opening levels following the release of better-than-expected UK trade data.
Sterling was also able to gain by 0.3% against the US Dollar, although ‘Cable’ was unable to push above the 1.30 level.
(Previously updated 08:30 GMT 08/07/2016)
Continued Brexit-influenced panic trades are making the Pound Euro exchange rate forecast stormy as usual as this week’s session draws to an end after another considerable series of Pound declines. Investors buying Sterling from its worst levels on Thursday did little to restore confidence.
GBP/EUR spent most of Thursday attempting to move away from its near three-year-low of 1.1616. While it reached a daily high of 1.1770, it was unable to keep this level and instead hovered in the region of 1.17 as the session drew to an end.
By Friday the Pound had softened further, with a dramatic slide in the GfK Consumer Confidence report limiting demand for the British currency.
The gauge dropped from -1 to -9 in response to the EU referendum result.
Pound (GBP) Slightly Boosted on Cheap Levels and Bank Deal
After two sessions of serious losses due to the Bank of England’s (BoE) fear-confirming stability report and the suspension of several property funds, Sterling was finally given room to breathe on Thursday.
Investors had previously moved to buy the Pound on Wednesday morning, but news that yet more property funds had suspended trading was enough to send it downward for a second consecutive session.
With markets finally in a calmer position on Thursday, investors were eager to purchase the Pound on cheap exchange rates not seen for multiple years.
Sterling sentiment was also slightly boosted in the middle of the day by news that UK Chancellor George Osborne had met with four major US banks in order to secure London’s position as the finance centre of Europe. As reported by Reuters;
‘Since the June 23 referendum there have been fears of an exodus from the City of London if access to the EU’s single market becomes significantly harder. Banks like JPMorgan have said they could move thousands of jobs.
On Thursday JPMorgan, Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley, as well as Britain’s Asia-focused Standard Chartered said they would try to support London’s financial sector.’
However, the Pound remains under considerable pressure amid regular Brexit news. It was also revealed on Wednesday night that France had overtaken Britain as the world’s fifth best economy due to the Pound’s lows, weighing on UK sentiment. News from NIESR that the UK economy had contracted in June also weighed on the Pound’s relief rally.
Euro (EUR) Struggles on Poor Data and Stronger Risk Appeal
While Sterling recovered against many rivals on Thursday, the Euro fell against most majors. Disappointing news from throughout the week, such as the bad debt surrounding Italian banks as well as poor growth outlooks finally caught up with the Euro, dragging it down from recent highs.
Thursday’s data also weighed on the Euro. While German industrial production was expected to hold steady on the month in May, and improve to 1.5% year-on-year, it undermined expectations with contractions of -1.3% and -0.4% respectively.
Also notable was the increase in risk asset appetite. A large increase in demand for risk-correlated currencies due to the day’s relative lack of Brexit news meant that many investors were selling the Euro in favour of riskier investments.
Investors had also been anticipating the European Central Bank’s (ECB) latest meeting minutes. While the meeting was back in early June and thus was unlikely to have a strong insight into the Brexit fallout, it further confirmed analyst suspicions that policymakers were very wary of a possible Brexit. Reuters reports;
‘The ECB’s minutes said that if Britain voted “Leave”, “there could be significant, although difficult to anticipate, negative spillovers to the euro area via a number of channels, including trade and the financial markets”.
The result of the June 23 referendum sent some markets into tailspin, boosting the euro – a negative for the ECB – but also lowering many sovereign yields, a positive for monetary policy.
ECB President Mario Draghi has said Britain’s departure will lower euro zone growth by up to half a percentage point in total over the next three years.’
Pound Euro Exchange Rate Forecast: Another Week of Losses for the Pound
With GBP/EUR struggling to remain above 1.17 and the exchange rate well below the level of 1.19 seen on Monday, it is highly unlikely that the Pound will recover before this week’s session ends.
That said, it is possible that Sterling may attempt to climb during Friday’s session if investors react positively to the top two nominees for Conservative leadership (and by extension, Prime Minister).
The Euro is likely to remain pressured too, as the ECB’s minutes and pressure between the UK and EU will likely weigh on Eurozone sentiment.
Friday is set to be relatively quiet in terms of data, but GBP/EUR may shift in response to the latest UK trade deficit figures, especially if they reflect the effects of the Brexit decision.
Lastly, the biggest upcoming event for potential movement is the Bank of England’s (BoE) interest rate decision next Thursday. If the key interest rate is cut as many analysts expect, it could mean that the Pound Euro exchange rate forecast will be a dire one.