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EUR/GBP Exchange Rate Tight as Euro Traders Consider Universal Eurozone Fund

March 26, 2018 - Written by Toni Johnson

Last week, the Euro to Pound exchange rate (EUR/GBP) fell from an opening level of 0.8806 on Monday morning to later close around 0.8743 on Friday evening.

Previous Eurozone data consisted of a sharply shrinking trade balance reading for January, but conversely much higher-than-expected growth in the level of monthly construction output.

Most of the week’s Eurozone data was negative, which contributed to steady EUR/GBP losses.

The bad news continued with German economic confidence readings provided by ZEW, which showed falling levels of optimism.

The last straw was Thursday’s PMI estimates and German confidence readings for March, which also showed disappointing and negative results.

Pound to Euro exchange rate gains were pushed higher by the news that UK inflation had slowed and earnings growth had risen.

Further support came from an unexpected drop in UK unemployment levels, along with signs that the Bank of England (BoE) might have penciled in a May interest rate hike.

EUR/GBP Exchange Rate Flat on Eurozone Fund Uncertainty

On a relatively quiet start to the week, the Euro has traded in a narrow range against the Pound because of uncertainty about an International Monetary Fund (IMF) proposal.

IMF Managing Director Christine Lagarde has suggested;

‘[A new IMF paper] proposes creating a “rainy-day fund” that countries contribute to each year to build up assets in good times.

Then, depending on the depth of a downturn countries would receive transfers to help them offset budget shortfalls.

In extreme circumstances, the fund would be allowed to borrow, however any borrowing would be repaid by members’ future contributions.

By itself, the capacity may not be enough to solve the next crisis — but it certainly would help’.

Eurozone leaders such as France’s Emmanuel Macron have previously proposed universal Eurozone budgets, although it is unclear if these ideas have gained traction among other heads of state beyond Germany.

GBP/EUR Exchange Rate Slips as Moody’s Highlights Continued Brexit Problems

The Pound may have posted minimal gains against the Euro today, but has otherwise fluctuated with major gains or moderate losses against its peers.

The UK currency has been devalued somewhat by a recent assessment from Moody’s, where company analysts have stated that;

‘The [transitional deal] agreement provides clarity that is credit positive for a broad range of UK issuers because it extends the narrow time frame that is available to shape and implement a new trade agreement and regulatory regimes with the EU until existing common rules cease to apply.

It also buys the UK limited time to negotiate free trade agreements (FTAs) with other countries.

However, the agreement remains conditional on the UK and the EU overcoming other challenges, such as the need to find a solution that prevents the creation of a hard border between Ireland and Northern Ireland.

Until a conclusive final agreement is reached, uncertainty over the terms of the UK’s future long-term relationship with the EU will persist, weighing on the operating environment for UK issuers and hampering corporate investment’.

EUR/GBP Exchange Rate Forecast: Euro to Pound Volatility Incoming on Eurozone Confidence Stats

The Euro to Pound exchange rate could fall back in the near-future, when Eurozone confidence data is released on 27th March.

A spread of data releases for various measures of economic optimism are scheduled for release, but in most cases the prediction is for falling figures.

The measurements will look at consumer confidence, business confidence and levels of industrial, services and economic sentiment.

Declining readings in all fields could drag demand for the Euro down sharply, leading to EUR/GBP exchange rate losses.

The week’s first UK data to watch out for will come relatively late on 29th March, consisting of GDP growth rate readings.

Estimates are for slowing levels of growth on the quarter and the year, which could leave the Pound making losses against the Euro and other peers before the end of the week.

There are also background concerns about a lack of continued Brexit momentum – if there are any breakthrough announcements this week then the GBP/EUR exchange rate could recover and make an advance.
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