Pound to Euro Exchange Rate Avoids Losses, Markets Anticipate Next Week’s Data
UPDATE: The Euro (EUR) is on track for its worst weekly fall in four months this week due to concerns about an economic slowdown in the Eurozone and the possibility of a recession in Germany, the Eurozone’s biggest economy.
As a result, the Pound Sterling to Euro (GBP/EUR) exchange rate has recovered this week’s losses and at the time of writing was trending closer to the week’s opening levels.
Next week’s potentially influential data includes growth figures from Britain, Germany and the Eurozone, and Brexit news could influence the Pound (GBP) next week.
Pound to Euro (GBP/EUR) Exchange Rate Holds Ground Despite Brexit Uncertainty
UPDATE: While most of this week’s Euro (EUR) weakness has been due to concerns of weakening German data and a possible recession in Germany, the shared currency was also dented by a stronger US Dollar (USD) at the end of the week.
The US Dollar is negatively correlated to the Euro, so as safe haven demand rose and the US Dollar strengthened, the Euro weakened.
Overnight, US President Donald Trump indicated that he was unlikely to meet with China President Xi Jinping before March, worsening concerns that no trade deal would be met before the US ramps up trade tariffs.
This worsened perceived US-China trade tensions. With Germany’s economy impacted by trade uncertainty over the past year, this made it easier for the Pound Sterling to Euro (GBP/EUR) exchange rate to avoid losses today.
Pound to Euro (GBP/EUR) Exchange Rate Struggles to Hold onto Highs after Thursday Rebound
Due to a combination of lower Bank of England (BoE) rate cut bets and speculation that a soft Brexit was becoming more likely, the Pound Sterling to Euro (GBP/EUR) exchange rate recovered yesterday. It was unable to hold its best levels though.
After opening this week at the interbank level of €1.14, GBP/EUR spent most of the week trending lower before recovering its losses yesterday. At the time of writing on Friday morning, GBP/EUR was on track to end the week fairly close to its opening levels.
The Pound (GBP) experienced a selloff earlier in the week on disappointing UK data, but Thursday’s Brexit news helped the British currency to recover.
Sterling was able to recover even more easily due to broad weakness in the Euro (EUR) this week, as Eurozone data repeatedly falls short of forecasts.
Friday’s Eurozone data, while a little better than expected, although it did little to cool German economic concerns.
Pound (GBP) Exchange Rates Recover as Brexit Negotiations Re-Open
Earlier in the week, investors sold the Pound (GBP) as the latest UK PMIs indicated that Britain’s economy would be negatively impacted by Brexit uncertainty.
As a result, Thursday’s news came as a slight relief to Pound traders as it offered some light on the uncertainty-filled Brexit process.
UK Prime Minister Theresa May was able to persuade the EU to reopen Brexit negotiations, despite the EU previously outright denying there was any possibility of any change in its stance.
With more UK-EU talks ahead, investors are a little more hopeful that the deal will become more appealing to MPs and could lead to a ‘soft Brexit’.
Analysts are also increasingly expecting that the government will be forced to delay the Brexit process past its current date at the end of next month.
The Bank of England’s (BoE) February policy decision on Thursday gave Sterling a little boost too, as BoE Governor Mark Carney signalled that markets should not necessarily expect an interest rate cut, despite Brexit uncertainty.
Brexit uncertainty ultimately kept the Pound under pressure though, making it difficult for GBP/EUR to hold its weekly gains.
Euro (EUR) Exchange Rates Unappealing on Weak Eurozone Data and US Dollar (USD) Strength
The Pound to Euro (GBP/EUR) exchange rate was more easily able to recover its weekly losses due to broad weakness in the Euro. The Euro has been unappealing for most of the week as German recession fears rose.
Most of this week’s German ecostats fell short of forecasts, with factory orders and industrial production both printing surprising contractions.
On top of this, the EU updated its growth forecasts this week and its forecast for the Eurozone was downgraded from 1.9% to 1.3% in 2019.
The Eurozone outlook is being dragged lower due to a current recession in Italy, as well as expectations for slow German growth which could lead to a recession there too.
Strength in the Euro’s (EUR) rival, the US Dollar (USD), also left the Euro weaker as the currencies are negatively correlated. The US Dollar benefitted from market demand for safe haven currencies.
Friday’s German trade balance and French industrial production results beat expectations slightly, which helped to keep GBP/EUR away from its best levels but ultimately had little impact on the Euro outlook.
Pound to Euro (GBP/EUR) Exchange Rate Traders Await Brexit Developments and German Data
Brexit uncertainty is still keeping pressure on the Pound (GBP) while demand for the Euro (EUR) is limited by German recession fears.
As a result, developments in these areas are likely to be influential for the Pound to Euro (GBP/EUR) exchange rate in the coming week.
In mid-February, the UK Parliament will hold another debate on the Brexit deal. If the government has been able to secure any concessions from the EU in fresh talks, it could boost the perceived likelihood of a soft Brexit and make Sterling more appealing.
If the perceived chances of a no-deal Brexit worsen though, the Pound could be in for losses.
Meanwhile, the Euro will be driven by upcoming German data. The biggest focus of the week will be Thursday’s session, when Q4 growth projections from both Germany and the Eurozone overall will be published.
Other factors, such as UK growth data on Monday and the US Dollar’s (USD) strength, may also influence the Pound to Euro (GBP/EUR) exchange rate.