Pound Euro Exchange Rate Strengthens on Data-Light Day and Brexit Speculation

December 12, 2016 - Written by Tim Boyer

STORY LINK Pound Euro Exchange Rate Strengthens on Data-Light Day and Brexit Speculation

Pound Sterling Trends Higher on Brexit Speculation

In the absence of fresh domestic data the Pound Euro (GBP EUR) exchange rate has nevertheless trended higher at the start of the week as the mood towards Sterling turned generally positive.

Hopes remain that the government will not pursue a hard Brexit, with a campaign group pushing for an assurance that non-British EU nationals will have their residency guaranteed when the UK leaves the EU.

While it seems unlikely that such an assurance will come before the triggering of Article 50, this still encouraged GBP exchange rates to trend higher, with investors more inclined to optimism this close to the end of the year.

Italian Banking Sector Optimism Shores up Euro Demand

Confidence in Euro (EUR) exchange rates was bolstered, meanwhile, by reports that the Italian Treasury is standing ready to recapitalise Monte dei Paschi, easing concerns that there could be another Eurozone crisis brewing.

While intervention from the Treasury would be less-than-ideal for the beleaguered bank, this prospect nevertheless boosted demand for the single currency, with investors increasingly optimistic over the future of the domestic banking sector.

Tensions over the outlook of the political landscape in Italy have also lessened after foreign minister Paolo Gentiloni was named as the next prime minister, even if the prospect of early elections continues to hang over the Euro.

Rising UK CPI Forecast to Weigh on GBP EUR Exchange Rate

Greater volatility is likely for the GBP EUR exchange rate on Tuesday, however, with the release of November’s UK Consumer Price Index report.

Forecasts point towards a fresh uptick in domestic inflationary pressure as the post-referendum increase in producer prices feeds through into the wider economy, raising the pressure on consumers and real wages.

As the Bank of England (BoE) has indicated that it is willing to look through some increase in inflationary pressure as a result of the Brexit vote, any uptick in CPI is unlikely to materially improve the outlook of the Pound.

Should the inflation data fall short of forecast, however, the Pound could find fresh support as the domestic economy continues adjusting to the realities of the post-referendum world.

Demand for the Euro, meanwhile, could be strengthened if the ZEW economic sentiment surveys for December point towards increased confidence within Germany and the wider Eurozone.

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TAGS: Pound Euro Forecasts