Pound Sterling to Euro Exchange Rate Movement Mixed as UK Economic Concerns Retake Focus
Last week saw the Pound Sterling to Euro (GBP/EUR) exchange rate edge higher, despite broad UK economic concerns. This was due to some better-than-expected UK stats, as well as political jitters weighing on the Euro (EUR).
After opening last week at the level of 1.1408, GBP/EUR fluctuated between lows of 1.1352 and highs of 1.1495 throughout the week. GBP/EUR closed the week at the level of 1.1446.
This week so far, GBP/EUR has seen modest losses and at the time of writing was trending near the level of 1.1425. The pair could be in for further losses if upcoming UK data disappoints, but it may advance instead if the data impresses.
Hopes that UK data were beginning to pick up has bolstered Pound (GBP) support, while the Euro has been weighed by mixed PMI data and various political uncertainties over the past week.
Both Italy and Spain have had a turbulent week in politics, with Italy seeing the formation of a new populist coalition government and Spain’s ex-Prime Minister Rajoy being pressured out of power by a ‘no-confidence’ vote.
Pound Sterling (GBP) Exchange Rates Avoid Lowest Levels as UK Data Shows Improvement
After generally bearish behaviour throughout May due to poor UK ecostats and persisting Brexit jitters, the Pound (GBP) began to see a little more data-influenced support last week.
Sterling trade was quiet and lacking in support for most of the week, but Thursday saw the publication of some better-than-expected UK consumer confidence figures, followed by solid UK manufacturing PMI stats on Friday.
The manufacturing PMI was forecast to have slowed from 53.9 to 53.5, but instead unexpectedly climbed to 54.4.
Still, it was not enough to help the Pound to continue holding its ground on Monday morning. As manufacturing growth had simply rebounded a little more than expected from April’s 17-month-low, it wasn’t a particularly impressive figure.
A study from the GMB union revealed that employment in the manufacturing sector had declined considerably over the last decade, losing almost 600,000 jobs.
A separate survey from EEF and BDO also indicated that UK business investment was at its lowest level for a year, with Brexit causing business uncertainty.
Euro (EUR) Exchange Rates Looking to Recover as Political Jitters Ease
Last week was a busy one for Euro investors, as Italy briefly saw what some analysts called a ‘political crisis’ and Spain saw a no-confidence vote for its Prime Minister.
But with the week now behind us, things are looking calmer again. This means the Euro is likely to recover as markets expect the worst uncertainties seem to be over.
Italy’s populist coalition between the League party and 5-Star Movement briefly crumbled when one of their government picks was vetoed, leading to concerns that Italy may head back to the polls and that Eurozone membership could be a major topic.
However, in the latter half of the week the coalition made another attempt at forming a government – one that was accepted by Italy’s President.
While political jitters have eased somewhat, Italy’s new coalition is still a populist one. Investors remain anxious that Italian Euroscepticism could rise with a populist government in power.
This, as well as Spain suddenly losing ex-Prime Minister Mariano Rajoy to a no-confidence vote, left the Euro weaker at the end of last week and helped GBP/EUR to recover.
Pound to Euro (GBP/EUR) Forecast: Further Gains Unlikely Unless UK Data Impresses
With the worst of Eurozone political jitters now behind Euro trade, the shared currency could continue to firm again.
However, the Pound to Euro (GBP/EUR) exchange rate still has the opportunity to advance higher, depending on major upcoming UK ecostats.
Tuesday will see the publication of Britain’s anticipated May services PMI report from Markit.
The figure is expected to have improved slightly, from 52.8 to 53. As services make up a notable chunk of Britain’s economic activity, this data could support Bank of England (BoE) interest rate hike bets and Sterling strength if it impresses.
Stronger-than-expected UK services stats could lead to another week of GBP/EUR gains, but the Euro could also find stronger domestic support this week.
Eurozone retail sales results will be published on Tuesday, followed by Eurozone growth projections on Thursday and German trade balance results on Friday.
With Eurozone politics looking to take a backseat for now, strong Eurozone data could provide the Euro with a stronger recovery opportunity.
However, unless there is a significant change in the UK or Eurozone outlook, the Pound to Euro (GBP/EUR) exchange rate is likely to remain largely range-bound in the coming weeks.
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