Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipated Brexit Speech from UK PM
A fresh UK-EU negotiation deadlock over how to handle the border between Northern Ireland and Ireland sent the Pound to Euro (GBP/EUR) exchange rate plunging by almost a cent on Wednesday.
GBP/EUR opened this week at the level of 1.1361 and attempted to hold its ground until Wednesday, when it plunged and trended near a fortnight-low of 1.1269 on Thursday morning.
An EU draft proposal on Brexit, published on Wednesday, noted that unless a solution is found to the Northern Ireland border issue, the nation may need to have different laws to the rest of Britain in order to maintain a soft border with Ireland.
As UK Prime Minister Theresa May rejected that part of the EU draft, EU chief negotiator Michel Barnier reminded the UK that a UK-EU transition period was still not a done deal.
The latest deadlock in UK-EU talks and the persistent possibility that a transition period may not happen has left investors concerned that a ‘hard Brexit’ could still happen instead. This has left Sterling (GBP) unappealing this week.
As a result, investors are now even more highly anticipating a Brexit speech from Prime Minister May set to be held on Friday.
May is expected to set out the UK government’s stance on Brexit and this could help the Pound recover if May impresses. Investors are hoping for signs that May will work with EU negotiators for a ‘softer’ Brexit.
Euro (EUR) Exchange Rates Up Despite Lack of Strong Eurozone Stats
Eurozone data published in recent sessions has had little impact on the Euro (EUR) and the shared currency’s strength has largely been due to broad weakness in the Pound.
While Spanish inflation projections were higher than expected in February, French and German inflation projections fell short of forecasts.
Overall, the mixed inflation results led to February’s year-on-year Eurozone inflation projection to slow from 1.3% to 1.2% as expected.
This week’s Eurozone inflation figures have underlined the European Central Bank’s (ECB) caution on monetary policy, and have kept ECB policy tightening bets low.
Still, the Euro held its gains easier against Sterling on Thursday as the day’s Eurozone data was more optimistic. Markit’s final Eurozone manufacturing PMIs from February beat projections, coming in at 58.6 overall rather than the forecast 58.5.
The Eurozone’s January unemployment rate was also promising. The rate improved to 8.6% as expected, but the previous figure was revised down to 8.6% too.
UK Data has Little Impact on Pound (GBP) Exchange Rates
This week, Pound investors are highly focused on Brexit uncertainties and developments. As a result, Pound trade has been largely unaffected by recent UK ecostats.
Thursday morning saw most of the week’s most influential British data published.
Markit’s February manufacturing PMI for the UK merely slipped from 55.3 to 55.2, rather than falling to 55.0 as expected.
The Bank of England (BoE) consumer credit print from January was lower than forecast at £1.357b rather than £1.4b. Mortgage approvals were higher than expected in January.
Pound to Euro (GBP/EUR) Forecast: Brexit Developments in Focus
Given that fresh uncertainty over Brexit negotiations and the revived Irish border debate have been the primary cause of Pound to Euro (GBP/EUR) exchange rate losses this week, it’s unsurprising that markets are now focused on Brexit developments.
Friday will see UK Prime Minister Theresa May hold her first major Brexit speech of the year. Markets are expecting her to offer some clarity on the government’s Brexit position.
Now she is also expected to make more clear how the government aims to handle the issue of the Ireland to Northern Ireland border.
If investors are impressed with Prime Minister May’s Brexit stance, the Pound outlook could strengthen and may even be able to reclaim some of its lost ground against the Euro.
The more likely a ‘soft Brexit’ looks to markets, the more appealing the Pound will be in the long term.
As for the Euro, market uncertainty about this weekend’s upcoming Italian general election and German coalition news could weigh heavily on the shared currency and make it easier for Sterling to recover.
GBP/EUR may be influenced slightly be data before markets close for the week too.
Friday will see the publication of Britain’s construction PMI from February, as well as German retail sales from January and Italian Gross Domestic Product (GDP) results from Q4 2017.
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