GBP/EUR Holds above Opening Levels despite Huge Public Sector Deficit

September 21, 2016 - Written by Toni Johnson

STORY LINK GBP/EUR Holds above Opening Levels despite Huge Public Sector Deficit

Market Paralysis Keeps GBP/EUR Positive despite Borrowing and OECD Forecast Headwinds

Government borrowing figures showed a strong deficit of -£10.1 billion and indicated Philip Hammond may overshoot targets, but GBP/EUR exchange rates held just above opening levels.
PwC Chief Economist John Hawksworth observed;

‘It may still be very difficult for the Chancellor to meet the March Office for Budget Responsibility (OBR) forecast for 2016/17, which envisaged public borrowing being £21 billion lower than the latest estimate for 2015/16.’

Additionally, the Organisation for Economic Co-operation and Development (OECD) created further headwinds for the Pound after releasing updated economic forecasts.

Although 2016’s outlook has been increased by 0.1% to 1.8%, projections for 2017’s growth have been halved to 1%, with the Interim Economic Outlook stating that, despite strong recent data;

‘Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.’

Approaching Federal Reserve Decision Keeps Euro Exchange Rates Soft

The Euro was weakened by the approach of the Fed’s interest rate decision announcement, with the prospect of a rate freeze weighing on the common currency.

Additionally, the OECD had also cut Eurozone forecasts, suggesting growth will be -0.1% lower in 2016 and -0.3% lower in 2017 than it had predicted at the end of the second quarter.

Although the outlook observed that ‘spillovers to the global economy, notably the Euro area, have been modest so far,’ the OECD also noted that ‘more negative effects on the Euro area are likely to become apparent in 2017.’

GBP/EUR Forecast; ECB Economic Bulletin and UK CBI Trends Data in Focus

While the Confederation of British Industry (CBI) trends data is usually considered low-impact, all UK economic data post-Brexit has found itself having a much more significant impact upon Pound Sterling.

The trends total orders figure is expected to hold steady at -5, while the trends selling prices measure has a rise from 8 to 10 forecast.

If realised, this could indicate that the weakened state of Pound Sterling exchange rates since the referendum is beginning to cause upside inflationary pressure.

Meanwhile the European Central Bank (ECB) is due to publish its latest Economic Bulletin.

Also due out are September’s Eurozone consumer confidence figures, which are predicted to be revised from -8.5 to -8.2.

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