Pound Sterling (GBP) to Euro (EUR) Flatter after Giving up Thursday Boost

December 2, 2016 - Written by Toni Johnson

STORY LINK Pound Sterling (GBP) to Euro (EUR) Flatter after Giving up Thursday Boost

The Pound to Euro exchange rate surged during the middle of Thursday’s trade session as Sterling was bolstered by new hopes of a soft Brexit. However, this movement didn’t last and by the end of the day GBP/EUR had given up most of its gains due to a bout of profit-taking.

GBP/EUR is still up slightly from the week's opening level of 1.1779. While it failed to remain above Thursday’s three-month-high of 1.1941, it has been able to hold its ground above the key support level of 1.18.

Pound (GBP) Sold from Best Levels after Soft Brexit Rally

Thursday was another highly volatile day for Pound trade. Sterling looked to have another day of strong gains in the bag after comments about the UK’s EU single market access gave markets increased hope of post-Brexit access.

Eurogroup President Jeroen Dijsselbloem hinted that there may be a way for the EU to allow the UK to remain in the internal market, while in an unrelated Parliament meeting the UK Brexit Secretary David Davis stated that the government may be willing to pay for access to the EU single market if necessary.

This gave Sterling a significant boost on Thursday – but not a boost it was able to maintain. The British currency was sold from its highs in a bout of profit taking after it broke past levels of key resistance and reached its best levels in months.

On Friday, GBP edged a little higher but was comparatively flat. Sterling may have been offered a little support from November’s construction PMI however, which impressed by improving to 52.8 despite forecasts of a drop to 52.2.

Euro (EUR) Fails to Benefit from Data Due to Political Jitters

Eurozone data published this week has been generally optimistic and Thursday’s session saw the publication of a particularly impressive unemployment report alongside its solid November manufacturing score of 53.7.

October’s Eurozone unemployment rate came in at a surprisingly low 9.8% despite being expected to stay at 10%. September’s rate was also adjusted to 9.9%. The October score indicated that unemployment throughout the bloc was at its lowest levels since 2009.

However this failed to cheer markets enough with the next week to be a vital one for Eurozone events. An Italian constitutional referendum and an Austrian presidential re-election will be held on Sunday which have the possibility to end in populist-influenced results.

Euro traders are also jittery as next week’s European Central Bank (ECB) meeting approaches, as investors speculate on the possibility of the bank’s easing package being extended.

GBP/EUR Forecast: Eurozone Political Events in Focus over the Weekend

For a little insight into how the Pound to Euro exchange rate will be behaving on Monday, the biggest influence will be this Sunday’s upcoming Eurozone votes.

The Italian constitutional referendum may itself not have a populist option, but if citizens vote ‘No’ to the constitutional changes there’s a chance Italian Prime Minister Matteo Renzi will resign as PM, which could leave the door open for a re-election and the rise of the populist Five Star Movement.

Meanwhile over in Austria, 2016’s Presidential election will be re-run and it looks like it could be a win for far-right populist Norbert Hofer. Green party candidate Alexander Van der Bellen looked to win earlier this year but the election had to be re-run due to the closeness of the results.

If ‘No’ wins the Italian referendum or Hofer wins the Austrian election, or both, the Euro will certainly fall on Monday as traders continue to grow concerned about the growth of populism throughout the Eurozone bloc – which could threaten the Euro itself if member nations begin to pull away from the EU as Britain did.

The Pound has stronger underlying strength in comparison thanks to the past week’s soft Brexit hopes. However, Monday will see the UK Supreme Court hearing the government’s appeal on a High Court Article 50 ruling.

The High Court ruled that Article 50 must be activated through Parliamentary vote rather than by just the government. If this is overturned, Sterling could also plummet.

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