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GBP to EUR Exchange Rate Firm as Eurozone Data Continues to Point towards Gloom

October 30, 2019 - Written by James Fuller

Amid fresh fuel to flame concerns that Germany’s economy is facing a recession, the British Pound to Euro (GBP/EUR) exchange rate continues to trend with an upside bias today. This is despite investors considering fresh uncertainties regarding how Brexit and an upcoming UK General Election will unfold in the coming months, which are limiting market demand for the recently embattled Pound.

After Brexit jitters pushed GBP/EUR back down from a 5 month best of 1.1649 last week, the pair closed the week at the level of 1.1576.

This week so far, GBP/EUR has seen a slightly more upside bias. Though its gains have been modest at best, GBP/EUR trended a little higher in the region of 1.1602 at the time of writing on Wednesday.

GBP Exchange Rate Outlooks Jittery as Investors Weigh Possible Election Outcomes

This week’s news has generally bolstered the Pound’s support, as fears of an imminent worst-case scenario no-deal Brexit have faded.

The EU has confirmed that the Brexit date has been delayed until the 31st of January, and UK Parliament has confirmed that a general election will be held on the 12th of December.

With a UK election imminent, Britain’s political parties are eager to start campaigning for what is likely to be a highly volatile and uncertain November for markets.

While many investors believe the ruling Conservative Party will win the election and secure the mandate needed to pass its relatively soft Brexit plans, analysts have urged caution that there are a broad number of possible outcomes and uncertainties.

According to Michael Hewson, Chief Market Strategist at CMC Markets:

‘The Pound will move on any move in opinion polls between now and the election. Whether we get a hung parliament or a (Labour leader Jeremy) Corbyn majority or a Tory (Conservative) majority is not clear,’

Still, the Pound has been able to sustain most of the strong gains it has seen over the past month, as for now the risk of an imminent no-deal Brexit has receded.

EUR Exchange Rates Unappealing as German Recession Fears Persist

This morning, the Euro briefly saw stronger demand as investors reacted to France’s Q3 Gross Domestic Product (GDP) growth rate projections.

Due in part to fiscal stimulus policies from French President Emmanuel Macron’s government, French growth unexpectedly held at 0.3% quarter-on-quarter in Q3, leaving France with resilient economic performance even as Germany’s slowdown persisted.

However, the Euro’s performance weakened further into the day, as investors reacted to the day’s other Eurozone data.

The Eurozone’s October confidence stats were mixed, but Germany’s October unemployment unexpectedly rose more than expected. These stats only fuelled the belief that Germany’s economy has fallen into recession.

According to a report from the Economic Intelligence Unit (EIU):

‘Most EU economies will also grow sluggishly: we expect Italy’s economy to remain flat, and that of the UK to grow by only 0.1% as Brexit-related uncertainty continues to take its toll on business investment.

The bright spot in Europe continues to be France, which should continue its run of being the fastest-growing major EU economy.’

GBP/EUR Exchange Rate Forecast: Federal Reserve and Eurozone News Ahead

With the Pound expected to be in for a month of volatility and uncertainty as Britain’s political parties hit the streets for election campaigns, the Pound to Euro exchange rate’s movement could be more influenced by the Euro’s strength in the coming sessions.

This evening will see the Federal Reserve hold its October policy decision. If the Fed becomes more dovish about US monetary policy, this is likely to lead to stronger demand for the Euro as the US Dollar’s (USD) rival.

A more hawkish Fed would have the opposite effect, as the Eurozone economic and monetary policy outlook is still gloomy.

Still, the Eurozone economic outlook could improve if upcoming Eurozone ecostats beat expectations.

Thursday will see the publication of key Eurozone ecostats, including German retail sales, as well as Eurozone growth, inflation and unemployment stats. These could cause some solid late-week Pound to Euro exchange rate movement.
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