CategoryCurrencies Direct

Brexit, monetary policy, and trade wars forecast to keep GBP/EUR exchange rate volatile

graficaMarch was a tough month for the pound Sterling to euro exchange rate. The pairing tumbled towards the end of February, hitting its lowest levels in three months, but the last few weeks saw Sterling slowly recovering its losses.

Things really picked up at the end of March, when the UK and EU surprised markets by publishing a joint draft Brexit agreement, and UK wage growth and employment data beat forecasts, improving the outlook for the UK’s consumer-driven economy.

But what does the future hold for GBP/EUR?

April starts with the next round of UK Markit PMIs, which measure activity in the manufacturing, construction and services sectors.

The latter is the most important, as it accounts for over 75% of the UK’s total economic output each year. Weakness in the services PMI would undermine the GBP/EUR exchange rate, while strength here would help to alleviate fears that the UK economy is slowing.

The month closes with the first official estimate of growth during the first quarter of 2018, which could have a significant impact upon the pound, as the economy has been trudging along since Brexit, walking a fine line between recovery and weakness.

Of course, no forecast for the pound would be complete without a mention of Brexit. Negotiations regarding trade could begin in April, and this could bring a whole host of new issues regarding the kind of relationship the UK has with the EU once Brexit is completed.

As well as all the usual monthly data set for release from the Eurozone during April, politics could play a large part in deciding EUR movement over the coming weeks.

The evolving trade dispute between the US and the European Union is likely to have an impact upon exchange rates, after the former levied tariffs on steel and aluminium imports as part of President Donald Trump’s ‘America First’ agenda.

If it seems that the EU will be forced to retaliate with tariffs of its own, fears that the world is on the brink of a global trade war will likely weigh on the euro.

Rounding off the month will be the European Central Bank (ECB) monetary policy meeting concluding on 26th April.

The Eurozone economy continues to send strong signals, but consumer price growth remains firmly below the ECB’s target of just below 2%. The euro is therefore likely to weaken if policymakers conclude that inflation isn’t showing any signs of picking up, while suggestions that further price growth is in the pipeline would boost EUR exchange rates.

Barring a fleeting spike higher, the GBP/EUR exchange rate is currently trending around its highest levels since mid-June 2017. Will Brexit positivity and the hopes of monetary tightening in May be enough to push it even higher?

Delays to Brexit talks unsettle pound Sterling

Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

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It’s been a volatile two weeks for the pound, with markets having plenty to react to. GBP/EUR struck a high of €1.1491, but quickly slumped again, reaching a low of €1.1297.

After GBP/USD hit a high of US$1.3453 the pairing swiftly dropped to a low of US$1.3306, although the exchange rate has now recovered much of its losses.

EUR/GBP slumped to £0.8763 after the latest European Central Bank (ECB) meeting, but quickly rebounded to a high of £0.8851. EUR/USD trended somewhat more calmly between a high of US$1.1847 and a low of US$1.1722.

What’s been happening?

There has been plenty on the economic, political and monetary fronts to keep the pound on volatile form these past couple of weeks.

The Bank of England (BoE) opted to keep interest rates frozen at 0.5%. While this was largely expected, the fact not one policymaker voted for another round of tightening showed the BoE was feeling very cautious about the economy indeed.

Markets didn’t have long to dwell on the monetary policy outlook, however, as there was plenty happening with regards to Brexit to keep Sterling volatile.

With the EU having set Friday 8th as the deadline for agreeing issues such as the Brexit divorce bill and the Irish border in order for the European Council to vote in favour of beginning trade negotiations.

It seemed that, after months of fretting over the divorce bill, it could have been the Irish border that derailed the Brexit timetable permanently.

The UK made some concessions, but these were swiftly blocked by Northern Ireland’s DUP, who Theresa May has to keep on side in order to hold a majority in Parliament.

Then, last Friday, the European Council agreed that sufficient progress had been made in talks and that discussions on trade could begin.

Sterling wasn’t happy, however, after many officials warned that this was going to be much harder than the initial phase of talks.

European Commission President Jean-Claude Juncker also soured appetite for the pound after stating that talks on trade wouldn’t start until around March.

After striking a six-month high on the 8th after the Irish border issues were resolved, GBP/EUR quickly tumbled and is now back around the levels seen a fortnight ago.

The euro had hit a one-week low after the latest European Central Bank (ECB) meeting, which gave no new details about when the quantitative easing programme may end.

Policymakers also kept their inflation projections sluggish, despite being upbeat about the Eurozone economy, suggesting monetary tightening is still a long way away.

GBP/USD spiked last week after the Federal Open Market Committee (FOMC) delivered the expected interest rate hike.

Markets had prepared for this, so the move created a good opportunity to sell USD, driving the price lower.

At the same time, the FOMC revised its growth and employment forecasts up – but left its inflation projections unchanged.

What do you need to look out for?

The pace of data and other developments scheduled over the coming days is starting to slow now as the Christmas break approaches, but there will still be some points of interest.

Trading may grow thinner as the days go by, but events such as a speech from BoE Governor Mark Carney on the 20th, US third-quarter GDP on the 21st and personal consumption expenditure figures on the 22nd will ensure things don’t get too calm.

Political developments are likely to cause friction as well. There could still be plenty of developments with regards to Brexit to unsettle the Pound, especially as the Cabinet is today beginning to discuss its aims for the second phase of negotiations.

US President Donald Trump is getting closer to being able to implement his tax reform plans; indications more progress is being made would support USD and weaken EUR.

At Currencies Direct we’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Since 1996 we’ve helped more than 150,000 customers with their currency transfers, just pop into your local Currencies Direct branch or give us a call to find out more.

Pound climbs as UK begins to make progress in Brexit negotiations

Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

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Despite experiencing both peaks and troughs, the pound has been able to record gains overall versus the Euro and US dollar over the past fortnight. GBP/EUR hit a low of €1.1138 last week, but is now trending at a high of around €1.1417.

Meanwhile, GBP/USD exchange rates have risen from lows of €1.3516 to highs of €1.3548 just before the weekend.

EUR/GBP has fallen to a 20-week low of €0.8758 over the course of the last fortnight, while EUR/USD has been able to make and largely hold some modest gains and currently trends around US$1.1841.

What’s been happening?

Pound advances were hampered in mid-November by a series of gloomy economic developments.

Chancellor Philip Hammond delivered an uneventful budget on the 22nd, but the Office for Budget Responsibility (OBR) followed up by publishing some dire figures for productivity and wage growth.

Data later in the week showed that consumer confidence had plunged back to the low last seen immediately after the referendum.

However, Sterling was able to recover at the end of the week after Bank of England (BoE) member Silvana Tenreyro warned that markets had not considered the possibility Brexit may push interest rates higher rather than lower.

Things continued to improve last week, after it emerged that the UK government was likely to up the amount it was willing to pay for a Brexit divorce bill to around €50 billion.

Fears over the Irish border remained, however, but these have evaporated today after the UK government agreed to the EU’s terms for keeping the whole of Ireland under single market regulations to prevent the need for a hard customs border between Northern Ireland and Ireland.

Meanwhile, the euro has been hampered by some disappointing data figures, with Germany’s consumer confidence and inflation data softening the outlook for the Eurozone’s powerhouse economy.

EUR was dealt a significant blow on Friday when a study found that the euro had failed to deliver the benefits to the economies that had joined it, such as narrowing the extent to which their prosperity diverged.

Although the US dollar muddled along over the past two weeks on the back of sky-high interest rate hike bets, there were several turbulent moments.

GDP data last Wednesday showed a better-than-expected rate of growth, while today the US dollar is on strong form after the weekend saw the Senate finally approved a bill for tax reform.

What do you need to look out for?

Tomorrow’s UK services PMI will be a big release, given that it chronicles activity in the sector responsible for over 75% of economic growth.

After that, markets will have to wait until Friday for the next notable UK releases, with a slew of industrial, manufacturing and construction data accompanied by trade figures and followed by a GDP estimate.

The middle of next week is likely to see severe turbulence on the markets, thanks to the clustering of interest rate meetings and decisions from central banks.

The US Federal Open Market Committee (FOMC) announces its latest decisions on monetary policy on Wednesday 13th, with the Bank of England (BoE) and European Central Bank (ECB) both publishing their latest policy conclusions on Thursday 14th.

GBP/EUR and GBP/USD will therefore being under notable pressure throughout the week, and that’s without even taking into consideration the likelihood of more news from the Brexit talks and US tax reform.

At Currencies Direct we’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Since 1996 we’ve helped more than 150,000 customers with their currency transfers, just pop into your local Currencies Direct branch or give us a call to find out more.currencies direct 2

Cabinet chaos rocks pound, ECB pressures euro

In October politics was the driving force of euro movement, with the Catalan crisis and fallout from the German election keeping the common currency on its toes.
So far, November has proven just as politically charged, with chaos in the UK cabinet leading to concerns that Brexit negotiations may be derailed.
The euro, meanwhile, came under pressure thanks to the European Central Bank’s (ECB) latest policy meeting, while the US dollar remained robust thanks to developments in President Trump’s tax plans and the odds of the Federal Reserve increasing interest rates in December remaining over 90%.
Over the last four weeks the GBP/EUR exchange rate has been fluctuating between €1.1446 and €1.1084, with the pairing trading in the region of €1.1283 by the middle of November.
EUR/GBP, on the other hand, fell from a high of £0.9021 to a low of £0.8736 (recovering to £0.88 at the time of writing) while EUR/USD shifted between $1.1879 and $1.1557.
What’s been happening?
Towards the end of October the euro weakened in response to the ECB’s hotly anticipated interest rate decision. The central bank reduced the size of its bond buying programme, but also extended it to run until at least September of next year.
As interest rates aren’t expected to be adjusted until QE ends, the move was euro-negative.
The dovish long-term outlook for policy helped GBP/EUR march its way to an over 4-month high. However, the Bank of England (BoE) soon put paid to any Sterling strength.
While the BoE increased borrowing costs for the first time in a decade, the Monetary Policy Committee intimated that future changes to borrowing costs would be ‘gradual’ and to a ‘limited extent’ – leaving the pound to fall by as much as 2% against most of the majors.
Sterling recovered some ground on upbeat UK data, but political developments put paid to a sustained Sterling recovery.
Prime Minister Theresa May lost two cabinet ministers in the space of a week as scandal swirled round Westminster, and dark rumblings of a leadership challenge clouded the outlook for Brexit negotiations.
What do you need to look out for?
A continuation of the recent political dramas would, of course, weigh on the pound.
If Brexit negotiations are adversely affected by all the upheaval, GBP could fall to fresh multi-week lows.
Meanwhile, the strength of the US dollar could limit the euro’s upside potential as we march towards December’s Federal Reserve rate decision. As EUR/USD is the world’s most traded currency pairing, the euro tends weaken when the US dollar strengthens.
Unless something happens to dash hopes of a US rate hike taking place next month, the US dollar is likely to remain elevated, keeping the euro under pressure in the process.
At Currencies Direct we’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.
Since 1996 we’ve helped more than 150,000 customers with their currency transfers, just pop into your local imagen currencies direct branch or give us a call to find out more.