GBP/EUR Exchange Rate Rises as UK Hits Historic Budget Surplus

April 24, 2018 - Written by James Fuller

STORY LINK GBP/EUR Exchange Rate Rises as UK Hits Historic Budget Surplus

On Monday’s trading session, the Pound to Euro (GBP/EUR) exchange rate saw a minimal overall rise from an opening level of 1.1413 to close higher around 1.1416.

There was little higher-impact UK data to boost the Pound, with the GBP/EUR exchange rate instead rising because of disappointing Eurozone PMI readings.

UK news saw analysts at the EY Item Club issue an optimistic but cautious forecast for national economic growth from 2018 to 2019.

EY Chief Economist Mark Gregory emphasised the steady but slow predicted path of economic expansion, stating;

‘While stability is welcome, especially in the uncertain world we find ourselves in, it is nevertheless the case that the projected level of UK growth is low.

‘[This is] relative to both the UK's historic performance and the rates of growth being achieved by the country's international peers.

‘The reality is that the UK's economic performance is likely to be stable but sluggish; businesses cannot rely on the macroeconomy to drive growth’.

Mr Gregory additionally warned that the situation could deteriorate for businesses;

‘Stable does not mean certain or static. There are significant shifts taking place both within and between sectors and there is a large amount of uncertainty around the outlook for the UK economy.

‘Conditions could change very quickly as a result of circumstances that businesses have no ability to control’.

The Eurozone PMI estimates for April proved the greater influence on the GBP/EUR exchange rate, with lacklustre flash estimates for April lowering EUR trader confidence.

The readings showed a decline for the German flash manufacturing estimate, along with a manufacturing sector slowdown for the overall Eurozone reading.

The overall Eurozone composite reading remained flat, instead of showing as-expected growth.

GBP/EUR Exchange Rate Rises as UK Sees Budget Surplus

The Pound to Euro exchange rate (GBP/EUR) has risen on 24th April, following the news that the UK government has hit its first budget surplus in 16 years.

Although only by a (relatively) narrow margin of £1.35bn in March, the reading has still been taken as good news.

Chancellor Philip Hammond is not expected to go on a spending spree just yet, however.

Economists are predicting that Mr Hammond will remain committed to expanding the surplus further, resisting pressure to commit extra funding to services such as the NHS.

EUR/GBP Exchange Rate Drops after German Confidence Slump

Euro (EUR) traders have had a worse day than Pound (GBP) investors by comparison, with the morning bringing news that German economic confidence levels have dropped.

The Ifo readings have all fallen in April and to make matters worse, March’s figures saw major downward revisions.

The stats led Ifo President Clemens Fuest to observe that;

‘High spirits among German businesses have evaporated’.

GBP/EUR Exchange Rate Forecast: Are Pound to Euro Losses ahead on UK GDP Stats?

The Pound to Euro exchange rate (GBP/EUR) could decline before the weekend, when UK confidence and GDP data will be released.

These data releases on 27th April will be followed by two potentially high-impact speeches from Bank of England (BoE) officials.

April’s reading for the GfK consumer confidence index, out early on Friday, is tipped to show an unchanged negative reading which could devalue the Pound.

Further ahead, the GDP growth rate estimates for the first quarter could prompt a Pound advance if they show upgrades for the preliminary figures.

The less predictable events will be the speeches by BoE Governor Mark Carney and fellow BoE member Andy Haldane.

Mr Carney previously damaged the Pound on the week starting 16th April, when he dashed hopes for a May interest rate hike with a series of cautious remarks.

Highlighting how uncertain GBP traders are about the next interest rate hike, however, the Pound rallied after Mr Carney’s remarks when fellow official Michael Saunders gave a more optimistic outlook.

There could be a repeat performance on the coming Friday, as dovish comments from Mr Carney may be followed by Pound-boosting positivity from Mr Haldane.

For Euro traders, the week’s next major economic data will be the European Central Bank (ECB) interest rate decision on 26th April.

ECB policymakers are not expected to adjust rates from their existing 0%, but even the slightest indication of tighter monetary policy in 2018 may be enough to boost the Euro.

After the dust from the ECB meeting, the Euro to Pound exchange rate could also see late-week movement when a spate of confidence readings come out on 27th April.

If forecasts prove accurate, the Pound to Euro (GBP/EUR) exchange rate could rise on the news as economic confidence is widely predicted to have declined during April.

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TAGS: Pound Euro Forecasts