Pound Sterling to Euro (GBP/EUR) Exchange Rate Remains Near Lows as Investors Digest BoE Warnings

Pound to Euro (GBP/EUR) Exchange Rate Lacks Drive Despite Strong UK Data and Weak Eurozone Data

UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate remained unappealing on Thursday afternoon, trending just above its worst levels all week despite the day’s strong UK retail sales results.

The Euro (EUR) has been able to hold its ground despite weak Eurozone data this week, due to softening Italy-EU tensions.

On top of this, the Euro benefitted from market reaction to Wednesday evening’s Federal Reserve policy decision.

The Fed spooked markets by indicating it would hike US interest rates more than analysts believe is appropriate. This led to a weaker US Dollar, which in turn made the Euro more appealing.

Pound to Euro Exchange Rate Little Changed by BoE as Euro Benefits from Rival Weakness

UPDATE: Brexit uncertainties continued to keep pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate in the early afternoon, despite Britain’s latest retail sales stats coming in well above expectations.

The latest UK retail data didn’t improve the Pound outlook much as analysts noted the data merely indicated that December retail activity would suffer due to Black Friday causing more November shopping.

The Bank of England’s (BoE) December policy decision didn’t do much for Sterling (GBP) either. The bank cut its UK growth forecasts as Brexit uncertainties worsened.

This made it easier for the Euro (EUR) to remain near its weekly best versus Sterling. The shared currency continued to benefit from weakness in the US Dollar (USD).

Pound to Euro (GBP/EUR) Exchange Rate Fails to Benefit from Referendum Speculation

After the Euro (EUR) strengthened on Eurozone political news yesterday, it remains strong today amid market reaction to the Federal Reserve’s December policy decision. The Pound, however, has been unable to find support in Brexit news and is currently trading at around €1.1051 on the inter-bank market.

Despite weaker Eurozone data, GBP/EUR has trended lower this week since opening at a level of €1.11.

As the Euro is the US Dollar’s (USD) biggest currency rival and typically sees a negative correlation with the US currency, it became more appealing when the Federal Reserve’s December policy decision spooked markets.

As a result of the Euro’s late-week strength, the Pound (GBP) remained weak despite a comment from a UK official that a second EU referendum may be possible if Prime Minister Theresa May’s deal fails to pass.

Pound (GBP) Exchange Rates Mixed as Brexit Speculation Persists

Pound (GBP) investors have been unable to focus on much but Brexit in recent weeks, and with major Brexit developments unlikely until the New Year the Pound is expected to remain highly volatile.

Due to sharper movements in its rivals on the back of the latest Federal Reserve policy decision, the Pound didn’t find any fresh support in the latest speculation of a second EU referendum either.

UK Work and Pensions Secretary Amber Rudd indicated overnight that a second Brexit referendum of some kind may become ‘plausible’ as a way forward if the deadlock in Parliament is not resolved.

Rudd argued that MPs should support Theresa May’s Brexit deal, but if it is voted down in Parliament the chances of a second referendum may grow. Speaking on ITV, Rudd said:

‘Parliament has to reach a majority on how it is going to leave the EU. If it fails to do so, I can see the argument for taking it back to the people again as much as it would distress many of my colleagues.’

Overall though, concerns about the possibility of a no-deal Brexit have made investors hesitant to buy Sterling.

Euro (EUR) Exchange Rates Climb on Rival Weakness despite Lack of Supportive Data

Despite this week’s Eurozone data falling short of market expectations, the Euro (EUR) has been more appealing since Wednesday due to political and global factors.

On Wednesday, it was formally confirmed that Italy and the EU had reached an agreement regarding the months-long issue of Italy’s controversial budget plans.

Italy has agreed to cut its target budget deficit from 2.4% to 2.04%, after the EU had rejected Italy’s budget plan months prior, and threatened disciplinary action if Italy did not recreate its plans in a way that better followed EU guidelines.

As Italy and the EU reached an agreement, market concerns about Euroscepticism in Italy lightened and the Euro saw stronger support.

The Euro also saw stronger demand following the Federal Reserve’s policy decision on Wednesday evening.

Investors sold the US Dollar (USD), as Fed officials indicated that they were not concerned about warning signs in the global economy. This spooked investors, causing the Euro – as the US Dollar’s biggest rival – to become more appealing in comparison.

Pound to Euro (GBP/EUR) Exchange Rate Could End Week Lower if Eurozone Confidence Impresses

Demand for the Euro (EUR) has risen despite this week’s underwhelming Eurozone economic data.

As a result, if Eurozone data is more optimistic towards the end of the week the Pound to Euro (GBP/EUR) exchange rate has even less chance of recovering its weekly losses.

Friday will see the publication of Germany’s January consumer confidence survey from GfK, as well as German import and export prices from November. French business confidence and growth stats will be published too.

Lastly, the Eurozone’s December consumer confidence projection will be published on Friday afternoon, and could prove even more influential for the Euro. The print is expected to have slowed from -3.9 to -4.3 but could offer the shared currency some support if it impresses.

UK growth projections and business investment stats will be published too, but they are unlikely to be particularly influential unless they have an impact on the market’s Brexit outlook.

Of course, any notable developments in the Brexit process or Eurozone politics could also have an impact on the Pound to Euro (GBP/EUR) exchange rate before markets close for the 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