EUR to GBP Exchange Rate Advances Ahead of Key Brexit Speech

September 22, 2017 - Written by Frank Davies

STORY LINK EUR to GBP Exchange Rate Advances Ahead of Key Brexit Speech

As investors anticipated a key Brexit speech from UK Prime Minister Theresa May on Friday morning, the Euro to British Pound exchange rate edged higher thanks to some strong Eurozone PMI projections. The pair could fall if the afternoon’s Brexit speech impresses markets however.

The pair has seen mixed movement over the past week. EUR/GBP opened the week at the level of 0.8790 and briefly hit a high of 0.8891 before slipping again. The pair could still end the week above 0.88 if the Brexit speech fails to impress.

EUR Boosted as Eurozone PMIs Impress Traders

Despite long-term uncertainty about the European Central Bank’s (ECB) monetary policy plans, investors have good reason to remain optimistic about the Eurozone’s economic recovery as the latest PMI projections came in well above expectations.

Markit’s preliminary Eurozone PMIs for September were better than expected in most notable prints. German manufacturing is impressively projected to have improved from 59.3 to 60.6 in September, above previous predictions of 59.

German services climbed to 55.6 and the composite figure came in at 57.8. Similarly, France’s preliminary PMIs all came in higher than forecast with the composite print rising from 55.2 to 57.2.

The overall Eurozone PMI projections came in at 55.6 for services, 58.2 for manufacturing and 56.7 for composite. Markit’s chief business economist, Chris Williamson, had this to say about the report;

‘The Eurozone economy ended the summer with a burst of activity, with the PMI signalling renewed impetus to already-impressive rates of growth of output, order books and employment during September.

The survey data point to 0.7% GDP growth for the third quarter, with accelerating momentum boding well for a buoyant end to the year.’

The report bolstered investor confidence that the Eurozone’s economic growth would remain strong, even if inflation in the bloc slips in the coming months.

Friday also saw European Central Bank (ECB) President Mario Draghi hold a speech, though he made no fresh comments on monetary policy and instead urged Eurozone member nations to tackle issues of youth unemployment.

Overall, the Eurozone’s economic outlook hasn’t changed in recent sessions, but the increasingly strong Eurozone economy has kept the Euro a relatively appealing currency.

GBP Dips as Investors Anticipate Brexit News

Sterling has fluctuated in recent sessions, as investors were left in limbo ahead of Friday’s highly anticipated Brexit speech from UK Prime Minister Theresa May.

The Pound weakened on Monday when Bank of England (BoE) Governor Mark Carney hinted that potential UK interest rate hikes would be gradual and limited, before strengthening on solid domestic data on Wednesday.

The BoE has repeatedly warned that the Brexit process could damage the UK economy. Markets hope for a good Brexit deal to limit the potential economic damage.

Recent Brexit news has concerned investors though. UK-EU negotiations appear to have hit a standstill, with UK negotiators criticising a lack of ‘creativity’ from the EU side, and EU officials stating the UK is not taking the process seriously enough.

UK Prime Minister Theresa May’s Brexit speech is being seen as an opportunity to break the deadlock and help UK-EU negotiations to make more significant progress.

As a result, the Pound’s current fluctuations are likely to continue until Brexit news helps markets to drive it either lower or higher.

EUR/GBP Forecast: Brexit News and Eurozone Inflation to Drive Pair

The Euro to British Pound exchange rate is likely to be influenced by UK Prime Minister Theresa May’s Brexit speech before markets close for the week.

If investors are impressed with the UK Brexit offer, Sterling will strengthen. If the government indicates it still intends on a ‘hard Brexit’ however, the Pound will weaken and EUR/GBP could see another week of gains.

The Euro outlook is unlikely to change much in the coming days.

While Germany’s 2017 Federal Election will be held on Sunday, pollsters and markets widely expect German Chancellor Angela Merkel will easily win a fourth term in power. As a result, it’ll have little impact on Euro movement.

Euro investors are more likely to look ahead to September’s Eurozone inflation projections, due towards the end of next week, before making any big movements on the shared currency.

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TAGS: Euro Pound Forecasts