The Euro has fallen back against the Pound today, trading slightly lower in the EUR/GBP pairing with a 0.3% rise.
This minimal reduction in demand doesn’t mean all is well in the UK, however; Sterling remains in low demand across the board.
The latest Brexit news has raised further uncertainty, with EU Chief Negotiator Michel Barnier confirming that the UK won’t be able to veto EU laws during the transitional period.
(First published 29th January, 2018)
Higher Optimism in January could Push EUR/GBP Exchange Rate Higher
The Euro to Pound exchange rate (EUR/GBP) has risen by 0.4% today, although this is mainly down to Brexit worries among Pound traders.
The Euro has a chance at extending its current gains against the Pound this week, assuming that Eurozone confidence data prints as expected.
A range of high-impact confidence measures will be out on 30th January, and predictions are positive in most cases.
In particular, the high-impact consumer confidence and business confidence stats are both expected to show rising optimism.
Other potential highlights include an economic sentiment reading, along with the services sentiment score for January.
Optimism about industrial output in the Eurozone is tipped to decline slightly, but the Euro could still appreciate if the overall confidence stats show growth.
Euro Turbulence Possible on Inflation Rate Estimate
While there are high hopes for the results of imminent Eurozone confidence stats, the Euro may not sustain a strong trading position against the Pound throughout the week.
As well as unemployment data out on 31st January, there will also be a major estimate of year-on-year inflation in January.
This is tipped to show a slowdown from 1.4% to 1.3%, which could lower confidence among Euro traders.
Slowing inflation implies a reduced likelihood of a European Central Bank (ECB) interest rate hike in 2018, as it reduces the pressure on the ECB to consider action.
Specifics of Brexit Transitional Deal could Inspire Pound to Euro (GBP/EUR) Advance
The Pound’s recent poor performance is down to high uncertainty about the exact nature of the Brexit transition deal, which is being discussed by EU ministers today.
The worry is that these ministers could decide on a punitive transition for the UK, where the country is forced to follow EU laws without being able to enact changes of its own.
It remains to be seen if such fears will be justified, but if the UK does seem set for a punishing year-and-a-half before official Brexit then the Pound could tumble.
GBP/EUR Exchange Rate at Risk of Declining on UK Services Sector Slowdown
Looking at upcoming UK economic data, the Pound could also be affected by a services PMI reading out on 5th February.
This measures economic activity in the services sector during January and is predicted by some to show a slowdown during the month.
While experts don’t believe that the services sector will show contracting activity, the expectation of a slowdown is still a risk to the Pound’s value.
The services sector is the largest sole contributor to UK economic growth, as it encompasses areas such as financial services, tourism and retail sales.