Pound to Euro Exchange Rate Steadies Following Last Week’s Brexit-Inspired Recovery
Despite trending lower for most of the week on Brexit uncertainties and underwhelming UK data, the Pound Sterling to Euro (GBP/EUR) exchange rate ended the week higher as Friday’s Brexit news left the Pound (GBP) more appealing.
After opening last week at the level of 1.1164, GBP/EUR slumped and spent most of the week trending nearer the level of 1.1100.
However, at the end of the week GBP/EUR touched on a half-month-high of 1.1210 as it recovered, and closed the week at the level of 1.1178.
On Friday last week, EU Chief Negotiator Michel Barnier’s optimistic comments regarding Brexit gave the Pound a solid boost.
Pound investors firmed in the currency and anticipated more news from Brexit negotiations and the Bank of England (BoE) this week, despite concerns that divisions within Britain’s ruling Conservative Party could damage UK Prime Minister Theresa May’s Brexit plan.
Pound (GBP) Exchange Rates Bolstered by Hopes for UK-EU Brexit Deal
Last week, investors bought the Pound up slightly from its cheapest levels on hopes that UK-EU Brexit negotiations would conclude optimistically.
Sterling saw a brief rise in support due to a Wednesday report, claiming that the UK and Germany were willing to drop key parts of Brexit negotiations in an effort to make sure a deal was reached.
However, Friday’s comments from EU Chief Negotiator Michel Barnier were even more influential for the Pound.
Barnier reminded markets that the EU also hoped to avoid a ‘no-deal Brexit’, and said that the EU was willing to consider alternative plans for the persistent issue of the Irish border. He said:
‘We are ready to simplify these checks, to have them carried out at a number of different places and have checks, thanks to technical means, which could take different forms,
They could be dispersed. They could take place in different places, on board vessels, in ports outside Ireland, they could be done using technological means, they could be dispersed, as I said, or simplified in technological terms.’
However, on Monday the Pound’s advances slowed, as reports suggested that up to 80 MPs within the UK Conservative Party may be willing to vote against UK Prime Minister Theresa May’s Brexit plan.
It reminded investors that even if UK-EU negotiations went well, the UK government still faced obstacles at home.
Euro (EUR) Exchange Rate Outlooks Weighed as US-EU Trade Jitters Worsen
Demand for the Euro (EUR) has been driven largely by strength in rivals, like the Pound, in recent weeks. As the Pound strengthened last week and the Eurozone’s latest data fell short of forecasts in many notable prints, the Euro weakened.
Towards the end of last week, German factory and trade data from July was published and indicated that German businesses and economic activity was being dented more than expected by US trade protectionism and geopolitical trade jitters.
German factory orders unexpectedly contracted at -0.9% in July, while July’s exports figure also came in at -0.9%. Industrial production was forecast to improve to 0.2% but instead slumped at -1.1%.
On top of this, the Eurozone’s Q2 Gross Domestic Product (GDP) growth rate projection fell short on Friday, printing at 2.1% year-on-year rather than the expected 2.2% and dampening the Eurozone’s growth outlook for the year.
Pound to Euro Forecast: GBPEUR Investors Anticipate Central Bank Developments
A slew of influential data from the UK and Eurozone will be published throughout the week, but on top of this both the Bank of England (BoE) and European Central Bank (ECB) will be holding their monetary policy decisions on Thursday.
Neither bank is expected to announce any changes to monetary policy, but any shifts in tone the banks take regarding policy outlooks could prove highly influential.
For example, if the Bank of England (BoE) plays up concerns about how the Brexit process could influence monetary policy the Pound could fall, but if the bank is more optimistic on the Brexit outlook Sterling could strengthen.
The Pound may also benefit if there are any signs that BoE Governor Mark Carney will be asked formally to extend his term as Governor.
As for the European Central Bank (ECB), investors will be looking for the bank’s tone regarding US-EU trade tensions. Any signs that the ECB outlook could be dampened by trade protectionism fears would weigh on the Euro.
Until Thursday, the Pound to Euro (GBP/EUR) exchange rate is forecast to react to UK job market and Eurozone economic sentiment data on Tuesday.
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