Pound Sterling to Euro Exchange Rate Forecast: Brexit Uncertainties Dominate GBP/EUR Outlook

Pound to Euro Exchange Rate Fails to Recover as Limp Movement Continues

UPDATE: Friday’s most notable UK and Eurozone data left both the Pound (GBP) and the Euro (EUR) unappealing, but ultimately the Pound to Euro (GBP/EUR) exchange rate could be on track to end this week lower.

Investors are hesitant to buy the Pound despite the Bank of England’s (BoE) rate hike this week, amid concerns that a worst-case scenario ‘no deal’ Brexit was still possible.

GBP/EUR investors are now anticipating next week’s key UK growth results from June, and projections from Q2, but unless they impress Sterling’s recovery potential is limited.

(GBP/EUR) Exchange Rate Recovery Limited by Continued Caution from Bank of England (BoE) Governor Mark Carney

UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate was unable to recover much on Friday morning despite the day’s underwhelming Eurozone retail sales stats.

Weak UK services data, as well as continued caution from Bank of England (BoE) Governor Mark Carney, have kept the Pound (GBP) under pressure and GBP/EUR trending in a tight range.

Analysts believe that the Pound could be in for more misery if the Brexit process goes badly, and Carney has indicated he believes the chances of a ‘no deal’ Brexit to be ‘uncomfortably high’:

‘I think the possibility of a no deal is uncomfortably high at this point. People will have things to worry about in a no deal Brexit, which is still a relatively unlikely possibility but it is a possibility.’

‘No Deal’ Brexit Fears and UK Data Leave Pound to Euro (GBP/EUR) Exchange Rate Looking Unappealing

The Pound Sterling to Euro (GBP/EUR) exchange rate is likely to end this week below the week’s opening levels rather than recovering, despite the Bank of England’s (BoE) interest rate hike yesterday.

Thanks to persistent market fears that a ‘no deal’ Brexit is possible, as well as some underwhelming key UK ecostats, GBP/EUR has slipped this week from the opening interbank level of €1.12. GBP/EUR is currently trending in the interbank region of €1.12.

This was despite GBP/EUR briefly touching a weekly high on Thursday, in the immediate aftermath of the Bank of England’s latest decision.

As the week draws to a close, even the Eurozone’s disappointing June retail sales results didn’t help the weak Pound (GBP) to advance.

However, it did make it easier for the Pound to Euro (GBP/EUR) exchange rate to avoid falling even lower.

Pound (GBP) Exchange Rate Bearishness Rounded off by Poor UK Services Data

Friday rounded off a bearish week for the embattled Pound (GBP), with the publication of Markit’s July UK services PMI – which fell short of forecasts.

The services PMI was predicted to have slowed from 55.1 to 54.7, but instead slumped to a disappointing 53.5. Analysts from Markit said that the data indicated that Britain’s services sector had fallen back into the ‘slow lane’.

According to Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, Brexit nerves definitely played a part in the weaker data too:

‘The UK services sector experienced a few bumps in the road in July as consumer and client confidence remained persistently half-hearted, and pessimism around the performance of the UK economy along with Brexit concerns lingered.

Levels of new orders and jobs growth were affected along with business optimism which remained below the long-term average even with July’s three-month improvement.’

This followed Thursday’s Bank of England (BoE) policy decision, in which policy members were unexpectedly unanimous in their vote to hike UK interest rates.

However, any market bullishness surrounding the BoE decision was short-lived as BoE Governor Mark Carney has since ramped up caution about the Brexit process and has even indicated that if the process goes badly UK interest rates could be cut again.

Euro (EUR) Exchange Rates Gains Limited by Underwhelming Eurozone Data

The Euro (EUR) was unable to capitalise on Pound (GBP) weakness this week, as Eurozone economic data continued to indicate that the bloc’s economic outlook was cloudy in the face of US trade protectionism.

While Eurozone inflation and other price pressure data has been stronger than expected, this week’s Eurozone growth and PMI figures have given investors little reason to believe the Eurozone economy is going to see another burst of strength soon.

Friday saw the publication of the Eurozone’s final July services and composite PMI results from Markit.

While the Eurozone’s overall composite PMI met forecasts and slowed from 54.9 to 54.3, the services print disappointed and most of the week’s German figures fell short too.

The slowdown in German activity worsened concerns that the Eurozone’s biggest economy was being negatively affected by US trade jitters.

Ultimately, the Euro was unable to climb much against the weak Pound on Friday as the Eurozone’s June retail sales disappointed too. Retail sales came in at just 0.3% month-on-month and unexpectedly slowed to 1.2% year-on-year.

Pound to Euro (GBP/EUR) Exchange Rate Forecast: Trade Data and UK Growth Results Ahead

Next week’s economic calendar will be a little quieter, especially for the Euro (EUR), but there is still plenty of news for Pound to Euro (GBP/EUR) exchange rate investors to react to.

At the beginning of the week, Germany’s June factory orders and July construction PMI data will be published, followed by June trade balance data from Germany and France on Tuesday.

As the trade balance data could give investors a better idea of how Eurozone nations have been weathering US trade protectionism and trade war concerns, this could be the most influential data of the week for the Euro.

Besides that, the Euro is likely to be driven by global trade developments as well as the strength of the US Dollar (USD), due to the reverse correlation between the Euro and US Dollar.

As for the Pound (GBP), any developments in UK politics or the Brexit could influence Sterling until Friday, when a slew of key UK data will be published.

Britain’s Gross Domestic Product (GDP) growth results for June, and projections for Q2, will likely be the most influential datasets for the Pound to Euro (GBP/EUR) exchange rate next week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard