GBP EUR Up from 2016 Lows - But Can these Gains Continue?

October 19, 2016 - Written by Frank Davies

STORY LINK GBP EUR Up from 2016 Lows - But Can these Gains Continue?

The Pound to Euro exchange rate could end the week on a higher note if it continues holding its ground. However, British data continues to have seemingly little-influence on the Brexit-sensitive Pound, leaving it volatile after its Tuesday rally.
GBP/EUR began the week trending at 1.1111 and despite floundering near six-year-lows on Monday the pair advanced by around a cent on Tuesday. After hitting its highest level in almost two weeks on Tuesday afternoon, 1.1211, the pair has slipped slightly and now fluctuates widely.

Pound (GBP) Exchange Rates Strengthen on Hopes for Brexit MP Vote

It seems UK markets will hold onto any hope they can find this month. The Pound Euro (GBP EUR) exchange rate rallied from its worst levels on Tuesday due to news that British Members of Parliament would ‘very likely’ have the chance to vote on a final Brexit deal towards the end of negotiations, before the Brexit process is completed in 2019 or beyond.

Pound trade has recently hit multi-year lows across the board due to fading hopes that MPs would be able to fight for access to the European Union’s single market and against a ‘hard Brexit’.

While it still seems uncertain as to whether MPs will be able to vote on the activation of Article 50 or the terms on which Brexit negotiations should begin, this news gave markets a little hope to hold onto.

The Pound was given a little extra boost on Wednesday morning thanks to the day’s UK employment report. The figure revealed that UK employment changes were not only better-than-expected between June and August, but that UK employment had reached a joint record-high of 74.5%.

Euro (EUR) Conversion Rate Trends Weakly as European Central Bank Tightening Hopes Fade

While Euro (EUR) exchange rates began the week charging ahead on European Central Bank (ECB) speculation, that hope appeared to be short-lived as the currency trailed against many rivals on Tuesday, allowing Sterling to make a solid advance.

Markets had been bustling amid speculation that the ECB could be packing in its extensive quantitative easing package sooner than expected due to concerns about it effectiveness and a desire to make things easier for Eurozone banks.

However, a consensus of economists indicated on Tuesday that it was actually more likely for the ECB to keep hold of QE until the most had been made from its positive effects. Forecasters predicted that the QE program was more likely to be extended into late 2017 than tapered early.

This left the Euro weaker on Tuesday and Wednesday, as investors adjusted their positions for Thursday’s ECB meeting.

GBP/EUR Forecast: ECB Action Unlikely This Week

Despite European Central Bank (ECB) speculation being a fixture of Euro trade for most of the week thus far, is currently seems unlikely that the bank will deviate far from the norm in its policy meeting this week - meaning Pound Euro (GBP EUR) exchange rate movement could be limited.


When the results of the meeting are announced on Thursday, the Euro could experience another slip if the ECB takes its usual vague stance on the future of monetary policy as investors still hoping for hints at tapered QE are disappointed.
However, if expectations are subverted and the bank happens to hint at a return to more normalised monetary policy in the future, the Euro could soar and may even knock GBP/EUR back towards the week’s lows.

Thursday’s UK retail sales data will not be as influential, but could give Sterling a little more support and help GBP/EUR to end the week near its highs if the scores beat expectations.

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