The Pound to Euro exchange rate rallied by around two cents last week to strike a two-month high, however, GBP/EUR has since given up all of those gains. Can the pairing return to this level? Or are further losses ahead?
Sturdy UK Manufacturing Boosts Pound
Sterling strengthened by around half a cent versus the single currency at the start of last week’s session thanks to a two-year high Confederation of British Industry (CBI) manufacturing print. The CBI’s latest report indicated that the factory output index rose from +5 to a two-year high of +8 in February, which boosted the Pound’s appeal.
A 70-month high Eurozone private sector PMI score was unable to lift the Euro on Tuesday, with investors more concerned with the French Presidential election and the possibility that anti-EU far-right leader Marine Le Pen might emerge victorious from the polls. Opinion polls suggested that Le Pen had halved the gap between herself and centrist frontrunner Emmanuel Macron.
GBP/EUR Advances Beyond 1.18
The Pound touched a two-month high on Wednesday morning ahead of UK GDP data, which showed an upgrade from 0.6% to 0.7% in the fourth quarter. On an annual basis GDP was revised down from 2.2% to 2.0%. Sterling stuttered following the announcement due to fears that a -1.5% dip in business investment – the first annual decline since 2009 – as a result of Brexit uncertainty could harm economic prospects going forward.
The single currency picked up the pace towards the end of the week as traders reacted to news that centrist candidate Francois Bayou had pulled out of the French Presidential election in order to support Emmanuel Macron. The decision was seen to make it more difficult for anti-EU Marine Le Pen to make it through the upcoming second round of votes.
Week Ahead
GBP/EUR started this week’s session on the back due to rumours that Scotland was considering holding a second independence referendum after UK Prime Minister Theresa May triggers Article 50. Reports also surfaced suggesting that EU nationals may not have the right to remain in Britain after Brexit, which worried investors as workers from the continent are highly important for the smooth running of many UK firms.
If further details emerge adding weight to the rumours of a second Scottish referendum or the loss of rights for EU workers then the Pound is liable to struggle versus the single currency this week. UK private sector data is tipped to remain sturdy but decent past economic performance could be overshadowed by Britain’s uncertain future.