GBP/EUR Update: Pound Euro Exchange Rate Trades Narrowly as Brexit Concerns Re-emerge
After initially strengthening this morning, the Pound Euro (GBP/EUR) exchange rate began to narrow again this afternoon as Brexit uncertainty started to weigh on the pairing once again.
The return of Brexit uncertainty comes as the UK government restated its commitment to leave the EU’s customs union, a point of concern for many GBP investors.
The move comes as a disappointment for investors, many of whom had hoped that the defeat of the Brexit withdrawal bill last week would have led to a softer approach by the government.
Parliament will hold a mostly symbolic vote on the EU customs union later this week, with the Pound Euro (GBP/EUR) exchange rate likely to tumble if it passes as expected.
GBP/EUR Exchange Rate Slumps as Inflation Figures, Carney Comments Prompt Rate Hike Doubts
After briefly striking a ten-month high at the start of last week, the Pound Euro (GBP/EUR) exchange rate experienced a sharp drop-off as doubts were raised over whether the Bank of England (BoE) would commit to a raising interest rates next month.
These doubts were first prompted by the release of the UK’s latest CPI figures, with a surprise drop in inflation in March causing some investors to raise concerns, weakening the Pound (GBP) exchange rate.
The concerns came to a head in the second half of the week when BoE Governor, Mark Carney, suggested in an interview that any upcoming rate rises could be delayed by Brexit uncertainty.
Meanwhile EUR was able to ride the weakness in the Sterling (GBP) exchange rate higher last week despite suffering some setbacks, such as a sharp decline in economic sentiment and some disappointing inflation figures.
Euro (EUR) Exchange Rate Tumbles as Eurozone Remains in ‘Lower Gear’
The Euro (EUR) found itself sliding against the Pound this morning following the publication of the Eurozone’s latest PMI figures.
According to data published by IHS Markit the composite index of both the Eurozone’s manufacturing and services sector held at 55.2 in April.
While this beat market forecasts that the index would slide to 54.9, is still suggests that the Eurozone is set for a far more modest pace of expansion this year.
Chris Williamson, Chief Business Economist at IHS Markit said:
‘The Eurozone economy remained stuck in a lower gear in April, with business activity expanding at a rate unchanged on March, which had in turn been the slowest since the start of 2017. Growth has downshifted markedly since the peak at the start of the year.’
Sterling (GBP) Exchange Rate Strengthens as Investors Cling to May Rate Expectations
At the same time the Pound (GBP) exchange rate appears to be picking itself up again at the start of this week’s session as a number of investors still appear confident that the BoE will raise interest rates next month.
While bets of a May rate hike from the BoE may have slumped from 85% to 56% a number of analysts are sticking to their guns that a hike is still inbound next month, helping to buoy the GBP exchange rate this morning.
Jordan Rochester, an analyst at Nomura said:
‘For the time being, and before all of the monthly data are in, we still on balance expect the MPC to raise rates next month. The MPC’s known reluctance to pre-commit may lead us to discount the importance of these comments.’
GBP/EUR Exchange Rate Forecast: ECB Rate Decision in Focus
Looking to the week ahead the main driver in movement in the GBP/EUR exchange rate is likely to be the European Central Bank’s (ECB) latest rate decision on Thursday.
This is likely to prompt the Euro (EUR) exchange rate to slide as observers forecast the ECB will leave its monetary policy unchanged, while also continuing to strike a dovish tone in regards to the possibility of future monetary tightening.
Also likely to prompt some movement in EUR this week will be the publication of Germany’s latest labour figures, with the single currency likely to strengthen if employment continues to expand at a robust pace.
Meanwhile the focus for Sterling (GBP) investors this week will be the release of the UK’s latest GDP figures, at the end of the week.
The figures are likely to prompt the Pound exchange rate to slide as economists forecast domestic growth will have slowed from 0.4% to 0.3% in the first quarter on the back of some soft economic data.