August 9, 2018 - Written by Tim Boyer
STORY LINK GBP to EUR Exchange Rate Rebounds from Worst Levels in Profit Taking
Amid a lack of fresh reasons to sell the Pound in recent sessions, the British Pound to Euro (GBP/EUR) exchange rate recovered slightly on Thursday. However, analysts predict the Pound’s potential for gains is limited, and that its Thursday gains are likely more due to profit taking and anticipation for upcoming UK data.
Due to days of losses, GBP/EUR is on track to end this week lower. GBP/EUR opened the week at the level of 1.1238 and tumbled for around three days straight, touching its lowest levels in almost 11 months, 1.1081, on Thursday morning before rebounding higher. At the time of writing on Thursday afternoon, GBP/EUR trended in the region of 1.1120.
GBP Rebound May be Limited Ahead of UK Data as Brexit Fears Persist
The Pound has been sold for most of the week so far, thanks to speculation that Britain could be headed towards a worst-case scenario ‘no deal’ Brexit.
Bank of England (BoE) Governor Mark Carney said last week that the chances of a ‘no deal’ Brexit were uncomfortably high, and this week UK Trade Secretary Liam Fox said the chances of the UK leaving the EU without a deal were currently around 60-40.
As a result, investors have been panicking about the lack of recent progress in Brexit negotiations. The lack of clarity or certainty about whether the UK and EU will be able to agree to a deal has dominated Pound movement.
Investors continued to sell the Pound Monday through Wednesday on fears of a possible ‘no deal’ Brexit, but traders did buy the British currency back slightly from its cheapest levels on Thursday.
Still, analysts expect the Pound’s recovery was limited and was due to rebound rather than any optimistic news. According to Fawad Razaqzada from Forex.com:
‘Sterling’s rebound is therefore mainly because of profit-taking on the short trades that had been accumulated over the past week or so.
Clearly some market participants have one eye on upcoming UK data while assessing the damage of a potential no-deal Brexit outcome on the UK economy. The latter is going to be a longer term worry which means any short-term rallies in the Pound could be short-lived, as it proved to be the case after the Bank of England’s rate hike last week.’
Investors were also hesitant to keep selling or buying the Pound too much on Thursday, ahead of Friday’s slew of key UK ecostats.
EUR Pressured Slightly by European Central Bank’s Cautious Comments
The Pound was able to more easily rebound from its cheapest levels versus the Euro, due to some fresh comments from the European Central Bank (ECB)
which were perceived as cautious.
The ECB published its latest economic bulletin on Thursday, and warned about the potential threats protectionism posed to the global growth outlook.
US trade protectionism and trade tariffs have made ECB officials anxious about a potential downside impact it could have. According to the ECB’s bulletin:
‘Downside risks to the global economy have intensified amid actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries,’
This week’s Eurozone data hasn’t been hugely supportive either, with German data from June suffering a brief slump that has not had a perceived impact on the Euro outlook.
GBP/EUR Forecast: UK Growth Results in Focus
Friday will see the publication of this week’s most influential UK ecostats, but as ‘no deal’ Brexit fears persist even the most influential results may only have a limited impact on the Pound’s potential for gains.
The day’s biggest dataset will be Britain’s June Gross Domestic Product (GDP) growth results, which include growth data from June and growth projections for Q2 2018.
If the UK growth data meets forecasts or even beats them, it will make investors more confident that the Bank of England (BoE)
was correct to hike UK interest rates during its August policy decision last week.
This would bolster Sterling support and could help GBP/EUR recover a little further, though Brexit uncertainties would likely put a lid on any potential recovery rally.
On the other hand, if UK data falls short it could make investors anxious that the BoE was too hasty in hiking UK interest rates, which may cause rate cut speculation to flare up.
Other notable data due on Friday includes France’s June industrial production results, June industrial and manufacturing production from the UK, and Britain’s Q2 business investment results.
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TAGS: Pound Euro Forecasts