Markets Shift Focus to US, GBP EUR Exchange Rate Limp

Modified: Monday, 7 November 2016 12:05 BST - Written by Toni Johnson

STORY LINK Markets Shift Focus to US, GBP EUR Exchange Rate Limp

The Pound to Euro exchange rate was left limp on Monday after last week’s surge, largely due to markets turning away from Europe and towards this week’s big event: the US Presidential election.

GBP/EUR gained almost a cent and a half last week, advancing from 1.1098 to 1.1235. The pair was able to hold most of these gains on Monday, but trended with a downside bias.

Pound (GBP) Demand Dampened as Markets Expect Article 50 Appeal

After rallying on Thursday and Friday last week on hopes that British MPs would be able to fight for access to the European single market before the UK begins the Brexit process, the British Pound slipped back slightly after markets opened on Monday morning.

Markets had been cheered by Thursday’s High Court ruling that Article 50 would need to be discussed in Parliament before activation. The Bank of England’s (BoE) policy freeze served as an additional GBP boost.

However, expectations that the UK government will appeal this ruling in order to gain the power to activate Article 50 without consulting Parliament left Sterling weaker on Monday. Despite this, GBP/EUR trade was relatively flat.

Euro (EUR) Undermined by Flood of US Dollar Trade

Much of the Euro’s advances last week were due to US Presidential election jitters. As polls tightened, the high uncertainty in markets led to a selloff of the US Dollar.


However on Monday, with Democrat nominee Hillary Clinton’s polling figures expected to improve, the US Dollar surged, undermining the USD-correlated Euro slightly.

The Euro was also slightly weakened by mixed Eurozone retail sales results for September and October. September’s official figures revealed monthly Eurozone retail sales had once again contracted at -0.2%, while yearly retail sales slowed to 1.1%.

October’s retail PMIs from Markit also slowed, from 49.6 to 48.6. Despite this, the Euro held its ground due to a jump in Eurozone investor confidence from 8.5 to 13.1 according to Sentix’s November report.

GBP/EUR Forecast: US Presidential Election in Global Focus

It may come as no surprise by this point to hear that the outcome of the 2016 US Presidential election will affect global markets on some level, due to the US economy’s dominance in world trade.

The strength of the Euro in the coming days may be heavily correlated to movements in the US Dollar. If Democrat Clinton wins the White House, markets will calm due to the similarity in economic policies existing between her and President Obama. This could lead to a US Dollar rally, which would in-turn weaken the Euro and allow GBP/EUR to hold its ground or even advance.

On the other hand, a win for unorthodox Republican nominee Donald Trump could send markets into a panic. Trump’s isolationist foreign and economic policies would be seen as a threat to global trade, weakening demand for the US Dollar and leading to a stronger Euro.

The coming week’s economic data is likely to have a muted influence on Pound and Euro movement as markets react to the outcome of the US election (which could be announced as late as Wednesday’s US session).

Regardless, Tuesday’s German trade data and Britain’s industrial and manufacturing production results may influence GBP/EUR later in the week.

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