Pound to Euro Rate Rise Triggered by Cautious Optimism about Brexit

November 7, 2017 - Written by James Fuller

STORY LINK Pound to Euro Rate Rise Triggered by Cautious Optimism about Brexit

On Monday’s trading session, the Pound to Euro rate rose from an opening range of 1.1261 to close higher at 1.1343.

Today, GBP/EUR has been trading in the region of 1.1366. This has been part of a continuing rise in the pairing, but is not as good as last week’s high of 1.1446.

Pound Appreciates after Government Reassures on Brexit

The Pound to Euro rise today comes after government comments about Brexit on Monday.

In the specific GBP/EUR pairing, the Pound has appreciated because the Euro is the weaker currency.

Prime Minister Theresa May’s speech on Brexit came at a Confederation of British Industry (CBI) event, where the PM attempted to reassure UK businesses.

Putting a brave face on the situation, the PM said;

‘We should be excited by the possibilities which this new relationship presents for the future.

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So as we look ahead to the next 10 years of Britain's economy, we should do so as rational optimists. There are huge opportunities ahead’.

This came ahead of the possible release of government projections on the effect of Brexit.

House of Commons Speaker John Bercow has set Tuesday evening as the deadline for the government, by which time it should release key documents looking at the impacts of leaving the EU.

If these documents do end up being published, they might see the Pound suffer a hit if they are particularly pessimistic about life outside the EU.

Euro Fails to Rise despite Surge in Eurozone Retail Sales

The Euro has lost ground today, despite year-on-year Eurozone retail sales rising in September. On the downside, there was a reported reduction in overall Eurozone retail activity.

Germany is the largest individual economy within the Eurozone and saw a retail slowdown in October.

Commenting on the matter was IHS Markit Principal Economist Phil Smith, who said;

‘The retail sector’s performance dipped at the start of the fourth quarter, as the PMI showed monthly like-for-like sales growth easing to the lowest since July.

And there was also bad news for retailers in terms of costs, which rose sharply during the month to add to the squeeze on margins.

The survey offered some cause for optimism, however, with firms growing in confidence about future sales performance and getting back into hiring mode after a drop in employment in September.

Retailers’ buying of goods for resale also picked up, growing at the fastest rate for five months’.

Smith also took a look at another key German data release today, the construction PMI.

This measure of nationwide construction activity showed a marginal slowdown in October, from 53.4 points to 53.3. Summarising the situation, Smith said;

‘The latest Germany Construction PMI showed a rise in building activity across the Eurozone’s largest economy at the start of the fourth quarter, adding to the news of ongoing strong growth in the manufacturing and services sectors.

A pick-up in homebuilding was the only real positive, however, as slower increases in both commercial and civil engineering activity meant that total industry performance moderated slightly.

Anecdotal evidence revealed that firms had to turn down new orders due to already full utilisation of resources, representing a potential limiting factor to growth going forward.

Extensive efforts to meet demand continued as constructors reported further steep rises in both workforce numbers and the purchasing of building materials.

There was little sign of supply chain pressures abating, with October seeing the continuation of the worst period of input delivery delays since 2006.

And constructors also faced the strongest purchase price inflation for six-and-a-half years as demand for materials outstripped supply’.

If Germany is able to reverse its economic fortunes and post higher growth in the future, the Euro could see a sudden rise due to higher trader confidence.

Will Missed Deadline Trigger Pound to Euro Decline?

While the Pound has recently risen against the Euro, this situation may not last until the end of the week.

In particular, if Bercow’s deadline for the Brexit reports is missed then the Pound could tumble against the Euro.

Government ministers have previously rejected releasing the documents because they claim it could jeopardise the Brexit process.

If the papers aren’t released at all, however, traders may assume that they suggest only UK economic hardship outside of the EU. Such a conclusion could bring a clear GBP/EUR rate drop.

The main Eurozone data on Wednesday will be a trade balance reading for September. During the month, a deficit expansion from -4.5bn to -4.8bn is expected.

Given the limited amount of Eurozone data out tomorrow, such a result could end up triggered a Euro to Pound decline.

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TAGS: Pound Euro Forecasts