Pound to Euro Exchange Rate Steadies on Mixed Eurozone Economic Outlook
Despite some strong Eurozone data this morning, the Pound Sterling to Euro (GBP/EUR) exchange rate’s decline slowed and steadied on Friday as investors remained optimistic about the Brexit outlook.
Since opening this week at the level of 1.1521, GBP/EUR has seen solid and strong movement.
GBP/EUR surged over a cent on Tuesday, and while the pair has slipped back from Wednesday’s year and a half high of 1.1717, it continued to trend strongly near the level of 1.1657 at the time of writing on Friday.
Demand for the Euro (EUR) improved a little yesterday, but the shared currency’s strength was highly limited amid lingering concerns about the Eurozone’s economic outlook.
Pound (GBP) Exchange Rates Hold Most Weekly Gains on Brexit Hopes
The biggest mover in currency markets this week has been the Pound (GBP), which saw a surge in demand on Tuesday as investors winded down bets that the UK could crash out of the EU in a worst-case scenario no-deal Brexit.
UK Prime Minister Theresa May revealed that UK Parliament would be given votes on a no-deal Brexit and even potentially a delay to Brexit, if her government’s Brexit plan fails to pass again on the 12th of March.
On top of hopes that MPs will vote to stop a no-deal Brexit from happening, speculation of a possible second referendum is also rising.
Britain’s opposition Labour Party has shifted its tone in the past week and appears more supportive of the idea of a second referendum.
Due to these hopes, the Pound has sustained most of this week’s strong gains despite some stronger Eurozone data towards the end of the week.
Euro (EUR) Exchange Rates Struggle to Recover as Eurozone Manufacturing Contracts
While this morning’s Eurozone data largely beat expectations, it was not enough to help the Euro to recover further versus a sturdy Pound.
After weeks of underwhelming Eurozone ecostats and broad market concerns about Germany’s economy in particular, this morning’s Eurozone data added a little weight to the view that the Eurozone economy had taken a slightly positive turn.
Germany’s January retail sales results came in at 2.6% year-on-year, while the monthly figure jumped past the expected 1.9%, from -3.1% to a solid 3.3%.
Markit’s February manufacturing PMI stats for the Eurozone were also a little better than expected in French and Eurozone prints.
However, as the German figure worsened to 47.6 as expected and the overall Eurozone figure still entered contraction despite it beating forecasts, concerns about slowing manufacturing kept pressure on the Euro.
Speculation that the Eurozone economic outlook is starting to improve again is limited, and economists still believe the European Central Bank (ECB) will not hike interest rates at all until next year.
Pound to Euro (GBP/EUR) Exchange Rate Investors Await Services and Growth Figures
The Pound to Euro exchange rate has seen solid gains over the past week, but its potential for further gains may be limited until there is a more concrete view of how the Brexit process will unfold.
While the government could offer Parliament votes on a no-deal Brexit and possibly a delay to Brexit, the Pound may not rise much further until a no-deal Brexit is completely off the table.
Further speculation about the possibility of a second referendum would also cause Pound movement.
Still, unless there are notable Brexit developments, the Pound to Euro exchange rate is more likely to be driven by upcoming Eurozone data next week. Some UK data could prove influential as well.
UK and Eurozone services and composite PMI stats will be published on Tuesday, as well as Eurozone retail sales stats from January.
The Eurozone’s latest Gross Domestic Product (GDP) growth rate stats will come in on Thursday, and the European Central Bank (ECB) will hold its March policy decision then as well.
If Eurozone data continues to point towards an optimistic turn for the Eurozone economy, the Pound to Euro (GBP/EUR) exchange rate could shed some of the past week’s huge gains.