GBP/EUR Exchange Rate News: Pound Sterling Weakens on Threat of Brexit Coup

July 16, 2018 - Written by Tim Boyer

STORY LINK GBP/EUR Exchange Rate News: Pound Sterling Weakens on Threat of Brexit Coup

Last week’s currency movement saw the Pound to Euro exchange rate open trading in the €1.1303 and after five days of fluctuation, close up higher at a level of €1.1316.

Weekly trading began on a positive note for Pound Sterling, when May’s GDP figure and a Q2 GDP estimate both showed growth.

These results respectively came from the Office for National Statistics and the National Institute for Economic and Social Research (NIESR); the ONS data was collected using new criteria which was considered to be more accurate than previous readings.

Despite this opening support for the GBP/EUR exchange rate, the Pound and Euro later saw major turbulence when US President Donald Trump paid a visit to the EU (via Brussels) and the UK.

In the former case, Mr Trump first arrived for a NATO summit in the Belgian capital and immediately ruffled feathers by calling NATO members out for not meeting the 2% of GDP spending target.

Mr Trump stepped up his aggressive stance by suggesting that the target be raised to 4%, again calling for all NATO members to meet this requirement.

This wasn’t the US withdrawal from NATO that some had feared, but still left EU leaders in a state of uncertainty after Mr Trump left for the UK.

His first Presidential visit also proved controversial, as Mr Trump said that if the UK had a ‘soft Brexit’ that would keep ties with the EU, then a US-UK trade deal might be off the table.

This statement caused a particularly rapid GBP/EUR exchange rate decline because a soft Brexit seemed to be exactly what Prime Minister Theresa May had just unveiled at a recent Chequers meeting of her cabinet.

Mr Trump later stated that a US-UK trade deal might be possible whatever the outcome of Brexit, but the damage lingered and prevented a faster GBP/EUR exchange rate recovery last week.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Drops on Brexit Fears

The Pound (GBP) has made a moderate loss against the Euro (EUR) today, as GBP traders consider the possibility of a hard-Brexit situation.

Prime Minister Theresa May has been under fire recently for proposing a supposed ‘soft Brexit’ plan and there are fears that Conservative Brexit supporters could mount a challenge.

This has been diffused slightly by signs that the PM could give in to some of the demands made by pro-Brexit MPs, but the Pound’s poor performance today shows how worried traders are.

Euro to Pound (EUR/GBP) Exchange Rate Static after Trump Labels EU ‘Foe’

On the other side of the currency pairing, the Euro (EUR) has made minor gains against the Pound (GBP) today due to headwinds from international news and Eurozone data.

Taking these one at a time, the Euro has been held back today by President Trump’s vocal opposition to the EU, which raises the risk of a trade war escalation in the future.

Speaking at his golf club in Scotland, Mr Trump said:

‘I think the European Union is a foe, what they do to us in trade. Now you wouldn't think of the European Union, but they're a foe.’

Mr Trump has long blamed the EU for having unfair trading agreements with the US and these remarks suggest that there might be further tariff escalations ahead.

Closer to home, Euro gains have also been reduced by May’s Eurozone trade balance which showed an unexpected surplus reduction during the month.

GBP/EUR Exchange Rate Forecast: Will Pound to Euro Pairing Drop on Slower UK Wage Growth?

The next economic data which could boost the Pound to Euro (GBP/EUR) exchange rate will be Tuesday morning’s UK jobs market data, which included unemployment and wage growth stats.

The UK jobless rate reading might not affect the Pound if it stays at 4.2% as expected, but Sterling could be weakened by a forecast-matching slowdown in wage growth without bonuses.

Slowing wage growth risks the rate of inflation overtaking the rate of wage growth, thereby creating economically harmful wage squeeze conditions.

Speaking of inflation, UK and Eurozone inflation rate stats are out on Wednesday and might cause significant GBP/EUR exchange rate volatility.

If UK wage growth is reported higher on Tuesday, a similar rise in inflation rates could push the Pound up because of higher hopes for a Bank of England (BoE) interest rate hike.

That said, an as-expected rise in annual Eurozone inflation during June could boost the Euro on Wednesday as it would make a near-term European Central Bank (ECB) interest rate hike more likely.

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