The GBP EUR exchange rate has seen poor performance in recent sessions, despite a lack of particularly supportive Eurozone data. This is largely because of the 2018 economic outlooks for Britain and the Eurozone, respectively.
GBP EUR opened this week at the level of 1.1338 and while it attempted to hold its ground on Monday the pair has fallen since then. On Thursday the pair hit a fresh December low of 1.1249.
Pound (GBP) Investors Anxious about Britain’s 2018 Outlook
Decent UK data over the past week has done little to make the Pound more appealing, as it has had no real effect on the long-term UK outlook.
The Confederation of British Industry (CBI) published its December factory and retail reports this week. The industrial trends orders report beat expectations of 14 and remained at 17, while the distributive trades print slowed from 26 to 20 as expected.
Thursday’s UK public sector net borrowing stats from November were slightly better-than-expected. The figure was predicted to worsen from £-7.46b to £-8.3b, but instead came in at £-8.12b.
This was largely because the previous figure was revised slightly higher, to £-7.25b.
However, not all the week’s UK data was optimistic. GfK’s December consumer confidence print unexpectedly worsened to -13, despite being forecast to remain at -12, indicating that consumers were gloomier than expected in December.
Analysts predict that consumer confidence is unlikely to pick up in the coming months either, leaving a sense of uncertainty for consumer trends in 2018.
Market uncertainty about how Britain’s economy will fare in 2018, as well as lasting concerns about the Brexit process and UK-EU trade negotiations, are the primary reason for the Pound’s lack of strength in recent weeks.
The UK and EU recently concluded the first phase of Brexit negotiations, but EU negotiators have hinted that key UK-EU talks on trade and a potential post-Brexit transitional deal may not begin until March 2018 at the earliest.
Markets are concerned that this leaves the UK government with just a year to secure key deals in potentially tough negotiations, before the Brexit is due to take place in March 2019.
The reality of the Brexit process is still setting in for a lot of investors too, as speculation rises on whether the City of London will be able to remain a key financial centre after Brexit.
With market activity quieting down for the holiday season and looking ahead to 2018, Pound investors are less likely to react to UK ecostats.
However, Friday’s final Q3 UK Gross Domestic Product (GDP) and business investment results could support Pound trade towards the end of the year if they impress.
Euro (EUR) Supported by Expectations of Strong Eurozone Growth
Recent Eurozone data hasn’t been particularly impressive, but it has been strong enough to keep markets optimistic that the Eurozone could have another year of solid growth ahead of it.
For example, Tuesday’s German business confidence survey data from Ifo fell short of expectations in two notable prints, but the results were still strong overall.
Thursday’s data from The Netherlands was strong, with consumer confidence rising from 23 to 25 in December and November’s unemployment rate improving from 4.5% to 4.4%.
French business confidence came in at 112 in December as expected, though the previous figure was revised slightly higher from 112 to 113.
The Eurozone surprised analysts with its impressive growth throughout 2017 and strong data up until the end of the year has indicated to traders that this will continue into 2018.
The bloc’s job market and Gross Domestic Product (GDP) trends are expected to continue to see strong performance.
While the European Central Bank (ECB) and analysts remain concerned about subdued Eurozone price pressures, there is still speculation that the ECB could take a more hawkish stance later in 2018 if Eurozone data continues to impress.
Essentially, forecasts of more strong Eurozone growth in 2018, as well as the possibility that the ECB could take a more hawkish tone in the foreseeable future, have left the Euro with strong support.
Upcoming Eurozone data could influence the currency slightly, but is unlikely to significantly improve or dampen market optimism about the bloc in 2018.
Friday will see the publication of GfK’s German consumer confidence stats for January, as well as Italy’s December consumer and business confidence surveys. Key Spanish and German inflation projections for December will be published next week.
GBP EUR Interbank Rate
At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1258. The Euro to Pound exchange rate traded at around 0.8878.
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