This Week’s UK Data Has been Too Weak to Support Pound to Euro Exchange Rate Gains
The Pound Sterling to Euro (GBP/EUR) exchange rate has been unable to recover all of this week’s losses, as UK data fails to notably improve the UK outlook. Coronavirus concerns continue to rise across Europe, while Brexit uncertainties also persist.
After opening this week at the interbank level of 1.10, GBP/EUR spent the week trending with a downside bias. In the middle of the week, GBP/EUR touched near last week’s lows of 1.09.
However, as of Friday GBP/EUR has generally avoided falling below the key region of 1.10. GBP/EUR trends around a third of a cent below the week’s opening levels at the time of writing.
Looking ahead, next week could be another big week for the Brexit process. Euro (EUR) investors will focus on movement in rival currencies like the Pound (GBP) and US Dollar (USD).
Pound (GBP) Exchange Rates Pressured as UK Growth Falls Short
Despite efforts from the UK government to promote boosts in economic activity in August, the month’s growth was ultimately worse than forecasters expected.
This morning saw the publication of Britain’s August growth rate results. Growth came in at 8.0% in the three months into August.
Most notably though, UK growth was only at 2.1% month-on-month in August, rather than the expected 4.6%. Yearly growth was a worse than forecast -9.3%.
According to Suren Thiru, Head of Economics at BCC:
‘While the latest data confirms a rebound in economic activity continued into August, the sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels.’
Euro (EUR) Exchange Rates Resilient despite Eurozone Coronavirus Fears
The Euro (EUR) has been driven more by strength in rival currencies this week, despite a lack of notable news to boost demand for the shared currency.
Concerns about the Eurozone’s coronavirus situation are worsening, due to surging infections in Germany and Spain. On Thursday, Spanish Prime Minister Pedro Sanchez announced a state of emergency in Madrid.
Still, the Euro remained fairly appealing overall. The currency benefitted from weakness in the Pound (GBP), as various economic and political uncertainties weigh on the British currency.
Perhaps even bigger for the Euro though is weakness in the US Dollar (USD), the Euro’s biggest rival.
The US Dollar has been weaker as the latest US political developments have left investors more hopeful for stimulus, which has weakened the safe haven US Dollar, allowing the Euro to strengthen.
Pound to Euro (GBP/EUR) Exchange Rate Awaits Political Developments
Next week’s UK and Eurozone economic calendars are looking quieter. As a result, Pound (GBP) and Euro (EUR) investors will be awaiting potential political developments.
This is true for Friday as well. Sterling investors are currently awaiting more UK Treasury measures to support jobs and the economy amid the coronavirus pandemic.
Update to government's economic support is coming – Treasury says: "The chancellor will be setting out the next stage of the Job Support scheme later today that will protect jobs and provide a safety net for those businesses that may have to close in the coming weeks and months”
— Richard Partington (@RJPartington) October 9, 2020
The biggest news next week could be Brexit developments though. Mid-October was originally the deadline for UK-EU Brexit negotiations, but it is now expected that talks will go beyond this point.
Still, markets are hoping for solid Brexit developments, amid fears that the UK government could pull out of talks if there isn’t any progress.
As for the Euro, it will remain sensitive to Eurozone coronavirus news, as well as movement in rival currencies.
The Pound to Euro (GBP/EUR) exchange rate may be more likely to recover if a stronger US Dollar (USD) weighs on the Euro.