Pound to Euro Exchange Rate Strength Limited Despite Bank of England (BoE) Speculation
Update 16:33 BST 04/09/2018:
Comments from both the Bank of England (BoE) and the UK Treasury that BoE Governor Mark Carney’s term as Governor could be extended offered the Pound Sterling to Euro (GBP/EUR) exchange rate some support on Tuesday.
However, the Pound’s (GBP) strength was limited as Brexit fears persisted.
On top of this, the lack of transparency in the decision has been criticized, with some analysts concerned about the independence of the BoE.
GBP/EUR could see a boost in demand if Carney’s term is formally extended though, and the Pound may see further support if Wednesday’s UK services data impresses too.
[Published 09:43 BST 04/09/2018]
Pound to Euro Exchange Rate Selloff Slows Following Bearish Monday
Monday saw Brexit uncertainties revived, driving currency markets and knocking the Pound Sterling to Euro (GBP/EUR) exchange rate back down from weekly highs. The Euro (EUR) was driven more by weakness in rivals than any Eurozone news.
While GBP/EUR climbed over a cent, from 1.1047 to 1.1164, last week, the pair also touched a 2018 low of 1.0994.
On Monday, GBP/EUR tumbled again on fresh Brexit concerns. While it edged higher on Tuesday, it still trended in the region of 1.1090 at the time of writing – putting it only about a cent above those worst 2018 levels.
The primary reason for the Pound’s (GBP) weakness on Monday was perceived disagreements between the UK government and EU negotiators over Britain’s plan for the Brexit process.
While Sterling’s Tuesday movement was limited so far in comparison, its selloff did come to an end, thanks partially to the latest Bank of England (BoE) speculation.
Pound (GBP) Exchange Rates Steady on Hopes for Bank of England (BoE) Governor
Following its Brexit-inspired tumble on Monday, Pound movement steadied on Tuesday.
Brexit jitters cooled slightly, but the Pound also found some support in speculation that Bank of England (BoE) Governor Mark Carney could see a small extension to the length of his term.
Carney originally intended to end his term in June 2019 – not long after the Brexit takes place and around two years short of the usual eight-year term for BoE Governors. His term began in 2013.
However, speculation has risen that he is under pressure from the UK government to remain at the helm of the bank until at least 2020, in order to help guide the bank and Britain’s economy more smoothly through a potentially turbulent Brexit.
This would improve the Pound outlook, as markets are generally put at ease by perceived consistency in monetary policy. If Carney’s term was extended, it would lighten uncertainty about the BoE going forward.
Euro (EUR) Exchange Rates Fail to Capitalise amid Mixed Eurozone Stats
Investors bought the Euro versus the Pound on Monday, but this was largely due to weakness in the Pound itself.
As the US Dollar (USD) was stronger on Monday, and the Eurozone’s latest data was underwhelming, the Euro’s gains were ultimately limited. The US Dollar (USD) is the Euro’s biggest rival and the two currencies often see a negative correlation.
Monday saw the publication of the Eurozone’s final August manufacturing PMIs. While the overall Eurozone manufacturing figure met projections, French and German stats fell short.
Most notably, Germany’s key manufacturing PMI fell from 56.9 to 55.9, rather than the projected 56.1. This worsened concerns that German factory activity was being impacted by US trade protectionism and trade war fears more than expected.
Still, despite this the Euro has been able to hold its ground near its best levels versus the Pound, as Brexit concerns remain the main story for GBP/EUR.
Pound to Euro (GBP/EUR) Forecast: Brexit and Bank of England (BoE) Speculation to Drive Outlook
The Pound to Euro (GBP/EUR) exchange rate’s movement continues to be driven primarily by the strength – or weakness – of the Pound.
This is likely to persist unless Eurozone data later this week is highly surprising, or there are some sudden movements in the US Dollar (USD) that influence Euro strength.
The biggest potential influences for GBP/EUR in the coming sessions will be developments regarding the Brexit process, or Bank of England (BoE) Governor Mark Carney’s term as Governor.
As UK-EU Brexit negotiations are set to accelerate, Brexit is unlikely to be far from the core of Pound movement most of the time. Optimistic negotiation developments or signs that Carney could remain as BoE Governor until after 2019 would make the Pound more appealing.
However, GBP/EUR could trend even nearer its worst 2018 levels again if Brexit concerns worsen, or if BoE Governor Carney continues to indicate he will step down in 2019.
As for data, services and composite PMI data from the UK and Eurozone, as well as Eurozone retail sales stats, could influence the Pound to Euro (GBP/EUR) exchange rate on Wednesday if they surprise.