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GBP to EUR Exchange Rate Firms on UK Data and Brexit Speculation

January 22, 2019 - Written by Minesh Chaudhari

Investors were more eager to buy the British Pound to Euro (GBP/EUR) exchange rate on Tuesday, as the latest UK data and Brexit news offered the Pound some fresh support. The Euro, on the other hand, remained unappealing amid concerns about the Eurozone’s slowing economic outlook and the latest disappointing Eurozone confidence stats.

After last week’s strong surge from 1.1196 to 1.1327, GBP/EUR’s movement this week has been a little more muted so far. At the time of writing on Tuesday afternoon, GBP/EUR had advanced to around the level of 1.1390 – but the pair remained below last Friday’s two month high of 1.1406.

Tuesday’s strong UK ecostats only gave the Pound a limited boost in demand overall though, as uncertainties about the Brexit outlook persist and limit demand for the British currency.

As a result, Pound to Euro exchange rate investors continue to anxiously await Brexit developments, as well as this week’s other influential Eurozone ecostats and of course Thursday’s European Central Bank (ECB) policy decision.

GBP Exchange Rates Benefit from UK Job Stats and Latest Brexit Speculation

After a steady performance on Monday, investors were more willing to buy the Pound on Tuesday as they digested the latest UK news and Brexit speculation.

While market reaction to UK ecostats is often dampened by broad uncertainties regarding how the Brexit will impact Britain’s economy, investors were still pleased with Britain’s latest job market report when it was published this morning.

Thanks to a surprisingly strong employment change figure of 141k, the nation’s key unemployment rate unexpectedly improved from 4.1% to 4.0% in November. This marked the best unemployment rate since 1975.

On top of this, Britain’s wage growth rate unexpectedly rose in November too. The average earnings including bonuses figure was expected to remain at 3.3%, but instead improved to 3.4% which was its best growth rate in a decade.

The news slightly bolstered Sterling demand and helped it to firm versus a weaker Euro, but analysts pointed out that it was unlikely to have much impact on the UK economic outlook. According to Tej Perikh from the Institute of Directors:

‘The recent pick-up in salaries, coupled with the fall in inflation, will be welcomed by households, though the hangover of weak real wage growth over the past 18 months will continue to be felt on the high street for the time being,

The Bank of England will be little moved by today’s data. While the momentum behind wage growth may build support for interest rate hikes, Brexit remains the spanner in the works for the [Bank’s Monetary Policy Committee].’

Speaking of Brexit, Britain’s opposition Labour Party said it would formally encourage MPs to vote whether or not they want to support a second referendum, through an amendment that will be discussed next week.

The impact on Sterling was muted though, as the Labour Party’s leadership would not commit to favouring a vote.

EUR Exchange Rates Unappealing as Global Growth Jitters Worsen

Investors have had little reason to buy the Euro since last week, as Eurozone data continues to disappoint markets and worsen concerns about the slowing Eurozone economic outlook.

The International Monetary Fund (IMF) cut its global growth forecasts for this year and 2020, citing worse than expected growth in Europe.

On top of this, ZEW published its January economic sentiment survey for Germany and the Eurozone today and multiple figures fell short of forecasts.

German current conditions slumped from 45.3 to 27.6, while the Eurozone’s economic sentiment figure only lightened slightly from -21.0 to -20.9.

Resilient demand for the safe haven US Dollar (USD), which is the Euro’s biggest rival, also kept pressure on the Euro.

GBP/EUR Exchange Rate Forecast: Can Euro Find Support in Upcoming Eurozone Data?

Demand for the Pound to Euro exchange rate could continue to rise in the coming days if investors are optimistic about potential Brexit developments or if the Euro remains unappealing on disappointing Eurozone ecostats.

However, if upcoming Eurozone data beats expectations it could finally give the Euro some solid domestic support that may help it to avoid further losses or even recover.

Wednesday will see the publication of France’s January business confidence and Eurozone consumer confidence figures for January, which will be followed by the Eurozone’s PMI projections for January from Markit on Thursday.

The PMI projections especially will give investors a better idea of how the Eurozone economy has been performing this month. If Eurozone PMIs beat projections, fears of Eurozone economic slowdown could lighten and the Euro could become more appealing.

Thursday will also see the European Central Bank (ECB) hold its January policy decision.

Some investors are hoping for the bank to indicate how likely an interest rate hike could be this year, so any surprising shifts in tone from the bank could be highly influential for the Pound to Euro exchange rate.
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