Pound Euro (GBP/EUR) Exchange Rate Slides despite Poor EU Business Confidence

March 27, 2018 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Slides despite Poor EU Business Confidence

Pound Euro (GBP/EUR) Exchange Rate Slides despite Poor EU Business Confidence

Sterling Rally Shudders to a Halt – GBP/EUR Exchange Rates Bearish on Next Phase of Brexit Negotiations

The Pound Euro (GBP/EUR) exchange rate pared recent gains this morning, failing to capitalise on some soft data releases from the Eurozone and floundering slightly on bearishness for the next phase of Brexit negotiations.

Economists had been hopeful that Sterling would continue its rally after last week’s news that EU member states approved the Brexit transition process, but the Pound’s trajectory fell short of expectations with the breakthrough now seeming like something of a damp squib.

Whilst greater clarity has been provided for businesses and citizens and a cliff-edge Brexit delayed, the decision is only a deferral, with markets still apprehensive that differences will dominate the next phase and the ongoing impasse of the Irish border will remain without tenable solution.

This outlook was shared by Mikael Olaj Milhøj, Senior Analyst with Danske Bank, who stated:

‘While positive, it is not the game changer and in any case a deal was widely expected. The negotiations won the future relationship are going to be much more complicated, not least with respect to the outstanding Irish border issue’.

EU Business Confidence Drops, Euro (EUR) Exchange Rates Come under Pressure

Business confidence in the bloc has grown increasingly poor according to the latest snapshot of Eurozone economic sentiment.

According to the European Commission’s index, business confidence fell to 1.34 in March, down from the previous period’s score of 1.48 and the estimate of 1.42.

This result was largely due to a fall in confidence in the retail, services and manufacturing sectors. Construction, however, saw a small improvement.

Beyond this, overall economic sentiment for the bloc also fell, this time to 112.6 from 114.2 - missing the forecast of 113.2.

Combined, this news limited the upward potential of the Euro, but it did not deter markets from favouring the single currency over the Pound, with the overall economic performance of the bloc still being held in high regard.

Pound Euro (GBP/EUR) Exchange Rate Forecast: German Unemployment and UK GDP Ahead

Whilst this week is a rather quiet one for the UK and the EU, the Pound Euro (GBP/EUR) exchange rate could encounter some volatility later on depending on the performance of Thursday’s German unemployment readings, and the UK’s final gross domestic product (GDP) estimate for Q4 2017.

Markets are currently expecting unemployment claims in Germany to slip from 5.4% to 5.3%, good news for Germany, but with the bloc’s overall labour market still weighed down by poor performances in Greece, Spain and Italy (to name a few) it is unlikely that the European Central Bank (ECB) will be pushed closer to tightening monetary policy.

For the UK, the final GDP estimate could cause a bit of a ruckus if it prints above forecasts, especially with the Bank of England (BoE) already expected to move for a rate hike in May.

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TAGS: Pound Euro Forecasts