EUR to GBP Exchange Rate Strength Limited on Catalonia Vote Uncertainty

December 22, 2017 - Written by Toni Johnson

STORY LINK EUR to GBP Exchange Rate Strength Limited on Catalonia Vote Uncertainty

Thursday saw the publication of some solid Eurozone confidence stats, but the results of Catalonia’s 2017 parliamentary elections concerned Euro to British Pound exchange rate traders. The Pound was supported by some better than expected UK growth data from Q3.

This week could see EUR/GBP advancing once again despite Catalonia concerns. The pair opened the week at the level of 0.8820 and hit a high of 0.8889 on Thursday, before trending nearer the level of 0.8860 on Friday.

EUR Knocked from Highs on Catalonia Concerns

Following days of decent demand for the Euro amid expectations of strong Eurozone performance in 2018, the shared currency weakened on Friday.

Catalonia, an autonomous region of Spain that was embroiled in an independence crisis earlier in 2017, held its 2017 parliamentary elections on Thursday and the results concerned markets.

It appeared that the region’s pro-independence parties had reclaimed their previous absolute majority from the vote, dealing a blow to Spain’s government which had been attempting to rein in the independence rhetoric from Catalonia in recent months.

It is still uncertain whether or not Catalonia’s three separatist parties would form another government, especially with ousted leader Carles Puigdemont still under threat of arrest from Spanish officials.

For now though, this uncertainty caused the Euro to weaken on Friday.

According to Jane Foley from Rabobank;

‘The markets have to reevaluate what it means for Spain, and does it mean anything for other countries - such as the Italian election in the spring.’

The election result came after the Eurozone’s December consumer confidence projections earlier in the day, which beat expectations and briefly boosted Euro demand.

Eurozone consumer confidence was predicted to slip from 0.1 to 0.0. While the previous figure was actually revised lower to 0.0, the December projection came in with an impressive 0.5, showing that Eurozone consumers were becoming gradually more confident.

GBP Supported By Stronger Growth Results

Britain’s economy grew more than expected in Q3 2017, according to the final Q3 Gross Domestic Product (GDP) report published on Friday morning.

UK growth was forecast to rise from 0.3% to 0.4% quarter on quarter and this print met expectations.

However, the year on year print came in at 1.7% despite being projected to come in at 1.5%. The previous figure was revised higher from 1.5% to 1.9%.

Q3 UK business investment was also stronger than expected in both quarterly and yearly prints. Quarterly investment remained at 0.5%, avoiding a predicted drop to 0.2%, while yearly investment printed at 1.7% rather than 1.3%.

According to Darren Morgan from the Office for National Statistics (ONS);

‘Most of the growth came from the dominant service sector, with accounting, recruitment agencies and retailing all performing well.

Manufacturing also boosted growth thanks to an increase in exports and the introduction of new car models. Meanwhile, household spending and business investment both grew steadily.’

Some analysts pointed out that despite the stronger than expected growth, Britain was still seeing its lowest annual growth rate in over 4 years.

EUR/GBP Forecast: German Inflation Due Next Week

Despite concerns about Catalonia and some stronger than expected UK ecostats, EUR/GBP is still likely to end this week above its opening levels.

While market activity is likely to be quieter during the festive holiday period, next week’s data still has the potential to influence the Euro to Pound exchange rate slightly.

Next Friday will see the publication of some notable December Consumer Price Index (CPI) stats from the Eurozone, including inflation projections from Spain and Germany.

Germany’s inflation report is likely to be particularly influential, especially if it comes in higher than expected. This could boost the Euro amid speculation of a more hawkish European Central Bank (ECB) in 2018.

Britain’s upcoming economic calendar is unlikely to be particularly influential, but Pound trade could be slightly influenced by Wednesday’s BBA mortgage approvals report and Thursday’s Nationwide housing prices data.

Of course, any developments from UK or EU officials regarding next year’s second phase of Brexit negotiations could also influence the Pound outlook.

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TAGS: Euro Pound Forecasts