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GBP EUR Exchange Rates Inch Ahead on Strong UK Factory Data

November 10, 2017 - Written by John Cameron

The Pound Euro exchange rate crept ahead today as markets responded to the latest run of UK data releases and news that Brexit progress could soon be made.

GBP Exchange Rates Bolstered by Solid UK Factory Growth

According to data from the Office for National Statistics (ONS), industrial production in the UK leapt to 2.5% year-on-year in September, beating the previous period’s 1.8% rise and the forecast of 2.1% whilst demonstrating the fastest pace of growth in all of 2017.

Month-on-month the reading also proved positive by climbing 0.7% in September, up from the 0.2% forecast, the previous period’s 0.3% and marking the 6th consecutive rise.

Beyond this, manufacturing production in the UK leapt to 2.7% year-on-year and 0.7 month-on month, beating the respective forecasts of 2.5% and 0.3%.

This surge in activity data demonstrates that the industrial sector continues to help provide at least some offset to the recent consumer slowdown, news that has since bolstered demand for the Pound.

Sharing a less optimistic perspective, however, was Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, who pointed out that the recent surge in oil prices would likely hinder manufacturing output in the coming months.

Tombs stated:

‘Looking ahead, however, the recovery in manufacturing output likely will weaken in response to the recent surge in the oil price. In addition, output in the energy supply sector likely plunged by about 4% month-to-month in October due to unseasonably warm weather. Accordingly, it’s unlikely that industry can be counted on to support GDP growth again in the fourth quarter’.

This news nonetheless bolstered the Pound, with markets happy to observe the industrial sector picking up speed.

UK Trade Balance Figures Prove Mixed, GBP Exchange Rates Inhibited

In other slightly less positive news, the UK’s trade balance figures proved mixed, with the quarterly trade deficit widening to £-9.5B in Q3 and the UK’s construction output only demonstrating a rise of 1.1%, down from the 3.9% previous and the forecast of 2.5%.

On a monthly basis, however, the UK’s trade deficit proved positive, narrowing to mark the smallest trade deficit recorded since May from £-3.46B, to £-2.75B and beating the £-4.7B forecast.

This reading was predominantly caused by the all-time high jump in exports to £51.58B (2.2%) whilst imports remained low at 0.7%.

The market reaction to this news was initially mixed, with investors also concerned about the recent political scandals in the UK and how they might affect UK Prime Minister Theresa May’s ability to secure a solid Brexit deal.

Following the latest Brexit-related announcement from EU Chief Negotiator Michel Barnier, however, the Pound finally secured its lead.

GBP EUR Outlook Grows Positive on Barnier Comments

On the political front, EU Chief Negotiator Michel Barnier has warned that Brussels will refuse to open trade talks in December unless the UK moves to offer clarity on the controversial ‘divorce bill’ within two weeks.

Barnier, speaking at a press conference in Brussels, stated:

‘This is absolutely vital if we are to achieve sufficient progress in December. It is just a matter of settling accounts as in any separation’.

Barnier also asserted that ‘some progress’ had been made in Brexit talks.

This news fostered a more optimistic outlook for the Pound, with markets hopeful that some progress could be made within the 2 week time period towards breaking the current deadlock.

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