Friday's Flash Crash Leaves Pound Euro Exchange Rate Holding 6-Year Low

October 10, 2016 - Written by Tim Boyer

STORY LINK Friday's Flash Crash Leaves Pound Euro Exchange Rate Holding 6-Year Low

The Pound to Euro exchange rate has trended limply since markets opened this week, seemingly unable to recover from a sudden drop in value on Friday. The Euro has been able to hold its ground thanks to solid Eurozone ecostats.

GBP/EUR lost over four cents in value throughout the course of last week’s trade, beginning the week in the region of 1.15 and hitting 1.11 by the weekend. The pair has briefly dipped as low as 1.10, taking the Pound increasingly closer to parity.

Pound (GBP) Undermined by Flash Crash, Fails to Recover

Friday morning saw mysterious movements in the foreign exchange market, as the value of Pound Sterling (GBP) exchange rates plummeted within moments in what analysts are calling a ‘flash crash’.

The cause of the currency’s drop in value is still unknown, but speculated causes include a trade that was accidentally too large, or automatic trading algorithms overreacted to ‘hard Brexit’ concerns.

Monday morning gave Sterling little additional ground to trade on. Market sentiment towards the currency remained low despite solid economic data, due to expectations that Britain would lose access to the European Union’s single market after the Brexit process finishes.

Euro (EUR) Conversion Rates Given Slight Boost on Solid Data

Euro (EUR) exchange rates put on a mixed performance last week, as Eurozone crises and Brexit jitters held the currency back. The shared currency was able to advance on Friday thanks to brief weakness in the US Dollar, due to disappointment in the latest US Non-Farm Payroll reports.

On Monday, Euro movement was still mixed. The currency was able to hold its ground slightly better thanks to the day’s Eurozone ecostats, which beat expectations.

Germany’s August trade balance jumped from 19.5b to 20b, with exports soaring to 5.4% and imports hopping to 3.0%. A Eurozone investor confidence report from Sentix also indicated that confidence had jumped from 5.6 to 8.5 in October, beating expectations of 6.0.

However, the Euro was slightly weighed down by fresh comments from European Central Bank (ECB) President Mario Draghi.

Over the weekend, Draghi stated that while the economic impact of Britain’s Brexit vote was still largely unknown, the vote itself was ‘very significant’, indicating to markets that the Eurozone’s economy was not out of the woods in relation to the Brexit vote yet.

GBP/EUR Exchange Rate Forecast: Eurozone Economic Sentiment Surveys Ahead

Tuesday’s session will be a little more influential for the Euro, and the shared currency could see more considerable support if the day’s October economic sentiment surveys from ZEW beat expectations.

Germany’s current situation score from ZEW is expected to increase slightly from 55.1 to 55.5. German economic sentiment is expected to have improved from 0.5 to 4.

If these scores beat expectations, demand for the Euro could increase slightly as better economic sentiment in the Eurozone bloc could indicate better economic activity.

Sterling is likely to continue to see its movement dictated by Brexit-jitters. If concerns over Britain’s long-term economic outlook persist, GBP/EUR could remain near its worst levels. However, if markets cool on the Pound, it could begin to recover as investors buy the currency from its cheapest levels.

As if stands, if Eurozone data continues to beat expectations it is likely that GBP/EUR could remain near its current lows – or worse – throughout the week.

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