Euro to Pound Exchange Rate Slips from Best Levels as UK Growth Beats Projections
As Friday’s UK data beat forecasts but the Eurozone’s latest inflation stats were generally unsurprising, the Euro to Pound Sterling (EUR/GBP) exchange rate was unable onto hold its best levels.
Thanks to broad weakness in Sterling (GBP) trade, EUR/GBP spent most of the week climbing from the week’s opening interbank level of £0.87.
While EUR/GBP has been unable to hold Friday morning’s three-month interbank high of 0.88, the pair still looks on track to end the week around half a cent higher. At the time of writing, EUR/GBP trended in the region of 0.88.
The primary reason for EUR/GBP gains throughout the week was signs that Eurozone businesses and consumers were more optimistic than expected. Friday’s EU summit also indicated that fissures on key issues between EU leaders were not as deep as feared.
However, the Pound pushed EUR/GBP back down from its best levels as the latest UK data bolstered hopes that Britain’s economy could sustain higher interest rates soon.
Euro (EUR) Exchange Rates Bolstered by Breakthrough in EU Migrant Crisis
Concerns that the EU could face new disagreements and fissures amid Italy’s new populist coalition government faded on Friday, as the week’s EU Summit appeared to reach a deal on the ongoing migrant crisis.
Italy had previously threatened to veto the summit’s agendas if it did not receive support on this issue. As Italy is an entry point for many migrants, it has been a key topic in Italian politics lately.
Italian Prime Minister Giuseppe Conte calmed markets with his comments following the deal:
‘After this European summit, Europe is more responsible and offers more solidarity,
Today Italy is no longer alone.’
It had also been a key issue for German Chancellor Angela Merkel’s fragile coalition, though Merkel did say that many disagreements still had to be worked out.
As a result, the breakthrough in a deal on the migrant issue following marathon talks at the EU summit was seen as a positive for the Euro.
Details on the deal were lacking, but the agreement will see migrant centres set up to process asylum claims.
Pound (GBP) Exchange Rates Rebound as UK Growth Beats Projections
The Euro (EUR) was unable to hold its best levels despite the breakthrough deal, as the Pound (GBP) also saw a jump in demand on Friday.
Britain’s final Q1 Gross Domestic Product (GDP) results were published on Friday and the quarter-on-quarter figure surprised markets by beating projections.
The figure was forecast to have slowed from 0.4% to just 0.1%. While it still slowed, it printed at 0.2% instead which was slightly reassuring to some investors.
It left traders a little more confident that Britain’s economy was strong enough to support higher interest rates from the Bank of England (BoE), boosting BoE interest rate hike bets following a week of cautious comments from BoE officials.
However, Sterling’s strength was limited by the latest Q1 UK business investment results. The figures fell short of forecasts, contracting from 0.3% to -0.4% quarter-on-quarter and from 2.6% to 2% year-on-year. This prevented the Pound from mounting a bigger late-week recovery.
Euro to Pound (EUR/GBP) Forecast: PMI Results in Focus
Next week’s ecostats may not be quite as influential, but they could still set the direction of Euro to Pound (EUR/GBP) exchange rate trade if they surprise investors.
Monday will see the publication of Markit’s final June manufacturing PMIs for both Britain and the Eurozone.
Britain’s construction PMI will follow on Tuesday, and the key services and composite prints for both the UK and the Eurozone will come in on Wednesday.
As services make up most UK economic activity, Wednesday’s services PMI report will be the most influential next week for Sterling (GBP) trade.
If the data indicates that Britain’s services sector performed better than expected in June, Bank of England (BoE) interest rate hike bets would rise and EUR/GBP could fall further from Friday’s highs.
On the other hand though, if there are any optimistic Eurozone political developments or the Eurozone’s upcoming datasets impress investors, the Euro to Pound (EUR/GBP) exchange rate will have an easier time holding its recent highs.