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Pound to Euro (GBP/EUR) Exchange Rate Struggles to Climb as Brexit Fears Persist and German Data Improves

December 6, 2018 - Written by Ben Hughes

The Pound Sterling (GBP) outlook could change significantly over the next few weeks – with one of the most pivotal Brexit developments events set for next week. As a result, investors are hesitant to keep buying the British Pound to Euro (GBP/EUR) exchange rate and the pair shed most of its Wednesday recovery attempt overnight.

Since opening this week at the level of 1.1265, GBP/EUR has largely trended lower. The pair briefly hit a two month low of 1.1186 earlier in the week before attempting to recover on Wednesday. By Thursday morning though, most of Wednesday’s recovery attempt had unwound and GBP/EUR trended in the region of 1.1225.

Pound Sterling (GBP) Exchange Rates Volatile as Brexit Fears and Uncertainties Persist

For most of the week so far, the Pound has been broadly unappealing amid concerns about the stability of UK Prime Minister Theresa May’s government, as well as the likelihood that her agreed UK-EU Brexit deal will be blocked by UK Parliament.

Market anticipation for a UK Parliament vote on the Brexit deal, set for the 11th of December, has been a significant focus for Pound investors.

On Wednesday however, demand for the Pound briefly surged in reaction to a Tuesday Parliament vote in favour of an amendment giving Parliament more control over the next steps of Brexit, in the event that the negotiated deal is voted down next week.
It led to fresh speculation that there could be a second EU referendum or that the Brexit process could be otherwise avoided. This rally was short-lived however, as more analysts believe a ‘no Brexit’ event is highly unlikely.

According to Peter Dixon from Commerzbank:

‘The outcomes are obviously up in the air at present. But as it currently stands, some form of Free Trade Agreement looks to be the most likely option,’

Sterling likely saw some additional pressure from Wednesday’s disappointing UK services PMI. The data was forecast to edge higher from 52.2 to 52.5, and other UK PMIs this week beat forecasts.

However, the UK PMI unexpectedly slowed to just 50.4 – concerningly close to the 50 point mark that separates growth from contraction.

Euro (EUR) Exchange Rates Avoid Losses as German Factory Stats Unexpectedly Grow

For most of the week so far, the Pound to Euro exchange rate’s movement was driven largely by Sterling as the shared currency was too limp, due to a lack of notably disappointing or impressive Eurozone ecostats.

Eurozone PMI stats from November were slightly better than projected, but still disappointing overall and did little to make investors more optimistic about the Eurozone’s economic outlook or the shared currency.

Thursday’s German factory orders data, on the other hand, helped support the Euro as the data beat forecasts.

While the previous figure was revised lower from 0.3% to 0.1%, the October figure improved to 0.3% rather than slumping to -0.4% as expected.

It marked the third consecutive month of gains for German manufacturing orders, and was followed by a more positive German construction PMI for November.

German construction printed with a contraction of 49.8 in October, but the November print showed a slight rebound to 51.3.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Key Eurozone Growth Projections Ahead

As Sterling investors continue to anxiously anticipate next week’s UK Parliament vote on UK Prime Minister Theresa May’s negotiated UK-EU Brexit deal, the Euro may be more likely to take point in GBP/EUR movement if Eurozone data is surprising.

Friday will see the publication of German and French industrial production stats from October, as well as France’s October trade balance results.

However, the day’s most influential stats will be Eurozone employment change data from Q3, as well as the latest Q3 Eurozone Gross Domestic Product (GDP) growth projections.

Eurozone growth is expected to have slowed from 0.4% to 0.2% quarter-on-quarter in Q3, with the yearly rate expected to slow from 2.2% to 1.7%.

If the Eurozone growth projection comes in higher than expected, the market’s Eurozone growth outlook may improve slightly. This could cause higher European Central Bank (ECB) interest rate hike bets and a stronger Euro.

Of course, any surprising developments regarding Brexit or the UK government are likely to be highly influential for the Pound and this will continue to be a volatile aspect to the Pound to Euro exchange rate.
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