Euro Strengthens on Fresh Data and Weak USD, GBP EUR Exchange Rate Flat

November 2, 2016 - Written by Ben Hughes

STORY LINK Euro Strengthens on Fresh Data and Weak USD, GBP EUR Exchange Rate Flat

The Pound to Euro exchange rate trended flatly on Wednesday morning, largely ignoring the day’s ecostats and trending flatly as markets focused increasingly on the US Presidential election. The Euro was able to hold its ground against Sterling recovery attempts.

GBP/EUR has fallen almost a cent in value since Tuesday morning’s high of 1.1169. During Tuesday trade, the pair fell below the week’s opening level of 1.1096 and hit a new two-week-low of 1.1055 by Wednesday morning.

Pound (GBP) Lacks Lasting Support

While the Pound was able to advance on Monday thanks to news that Bank of England (BoE) Governor Mark Carney had extended his tenure as bank head into 2019, Sterling was unable to hold onto these gains and the currency slipped again on Tuesday.

Repeating an all-too-familiar pattern for the Pound, sturdy economic data failed to support the British currency. Tuesday’s seasonally-adjusted UK Manufacturing PMI for October slightly disappointed, but still printed a solid 54.3. Wednesday’s Construction PMI beat expectations, hopping to 52.6.

Forecasters are becoming increasingly convinced that the Pound simply cannot sustain advances for long despite typically good economic news. Alberto Gallo from Algebris Investments stated ‘The Pound tries to go up, then stops. Investors are not buying the dip, they are looking to sell the pop’.

Euro (EUR) Exchange Rates Sturdy on Weak US Dollar and Eurozone Ecostats

While the Pound edged higher from its Tuesday lows against many rivals due to weakness in the US Dollar, the Euro also benefitted from this USD slump as the Dollar’s biggest currency rival.

With US markets becoming increasingly jittery ahead of next week’s US Presidential election, investors sold off the now volatile US Dollar in search of more sturdy investments. The Euro appeared to be one of these, as well as traditional ‘safe havens’ like the Japanese Yen.

Wednesday’s Eurozone data also supported the Euro slightly. Traders were cheered by news that the Eurozone’s final October manufacturing score from Markit had beaten expectations at 53.5 despite German manufacturing slipping to 55.

What was even more impressive was a surprise drop in German unemployment. Unemployment improved by -13k, causing the key unemployment rate to unexpectedly improve from 6.1% to a 6.0%. This was the lowest unemployment level since Germany’s reunification in 1990.

GBP/EUR Forecast: Period of Euro Strength Ahead

While markets may continue to edge Sterling just higher than its 2016 lows, the Euro could be in for a week of sturdiness as the US Presidential election draws closer and US market jitters worsen.

As the US Dollar’s biggest trade partner, the Euro often benefits from weakness and volatility in the ‘Greenback’ and as a result it may be difficult to undermine the Euro in the coming week.

Regardless of pre-election polling, markets will want to avoid the US Dollar, meaning the Euro is likely to continue performing well against many rivals - besides more traditional safe currencies like the Yen and Swiss Franc.

Thursday may cause some Pound movement however, as the Bank of England (BoE) will announce its November decision. If the bank hints at further stimulus measures despite recent forecasts of a spike in UK inflation, the Pound could weaken further.

Thursday will also see the publication of the European Central Bank’s (ECB) latest economic bulletin, as well as Eurozone unemployment results for September.

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