GBP/EUR & EUR/GBP Weekly Outlook 29th Oct - 2nd Nov.

Good morning everyone,

The Euro come under some pressure overnight as the slump in the vote for the German coalition parties added to concerns about geopolitical uncertainty, rumours are rife today the German Chancellor will resign or not run for next election, she’s due to make an announcement early this afternoon. Sterling meanwhile remains close to recent trading lows against the Euro ahead of this week’s UK budget and policy update from the Bank of England. These set events may at least briefly turn the focus of UK markets away from Brexit.

The UK Budget statement will be the key focus today.  Chancellor Hammond will have taken comfort from data which suggests economic growth is proving resilient despite ongoing Brexit uncertainty. Nevertheless, there is growing political pressure on him to loosen the purse strings and “end austerity”. 

The slight majority of analysts anticipate an upbeat Budget that shows that recent spending promises will be delivered on, with any related increase in government borrowing limited by a sustained “surprise” underlying improvement in the public finances. Borrowing (PSNB ex banks) for 2018/19 is forecast at £29bn, around £8bn lower than the March Budget. For the next four years of the forecast, many expect around £15bn of additional borrowing compared to March. This should mean that the Chancellor continues to meet his fiscal rules. On the issue of Brexit and what this may mean for the UK economy and public finances, the Office for Budget Responsibility has confirmed that it will not address this in this Budget.

Brexit News.

There are signs leading Brexiteers may be examining a compromise that keeps the U.K. in the European Economic Area until the government reaches a trade agreement with the bloc, the Sunday Telegraph reports. The “Norway for Now’’ plan, pushed by former minister Nick Boles, is gaining support from hardliners such as former Brexit Secretary David Davis. 

The Bank of England may be on course to cut its growth forecasts for the next two years at this week’s Inflation Report, (this would weaken Sterling exchange rates) even without taking into account the latest impasse in Brexit negotiations. Boris Johnson used his latest Telegraph column to back prominent Brexiteer James Dyson’s decision to build his electric car in Singapore, with the article’s headline saying that the U.K. is “currently doomed to humiliation.” Hammond will announce a special Brexit coin in today’s budget, the Sun reports. The new 50 pence piece will bear the phrase “Friendship With All Nations” and will be available from the U.K.’s.

GBP/EUR & EUR/GBP Weekly Movements

The GBP/EUR exchange rate should be lower than what we have seen recently but the Euro zone has seen its own uncertainties recently. Italy and now Germany both have the potential to open a big can of (uncertain) worms that will weaken the Euro. For this week we’ll have to wait and see how things unfold in the EU. With market sentiment for GBP/EUR rate on a downward/sideway trend at time of writing - Current key trading level is around the €1.12’s (If we see the rate move Lower than this level for a sustained amount of time, then the likelihood of the rate moving into the €1.11’s will be high). Traders are now looking ahead to this afternoons Budget report and particularly any revision to growth forecasts and any changes to this week’s quarterly inflation report. The BoE meeting itself shouldn’t throw up any surprises with most focus on the Inflation report. For now it looks like Brexit news will have less focus on it but as we have seen unexpected comments can come without warning. 

Low Risk takers with pending exchanges that need to be made this week, should consider making their exchange prior to this afternoons Budget Report.
Medium Risk takers with pending exchanges that need to be made this week, could wait until after this afternoons Budget report as it’s meant to be the “end of austerity” budget so it could throw up some positive surprises but holding on until Thursdays BoE meeting and Inflation Report would be seen as a High Risk move.


Key Economic Data and Events 

Monday, October 31
15:00 GBP Budget Report
Tuesday, October 30
06:30 EUR French Gross Domestic Product (3Q)
08:55 EUR German Unemployment Data (OCT)
10:00 EUR Euro-Zone Gross Domestic Product (3Q)
13:00 EUR German Consumer Price Index (OCT)

Wednesday, October 31
00:01 GBP GfK Consumer Confidence (OCT)
07:00 EUR German Retail Sales (YoY) (SEP)
10:00 EUR Euro-Zone Unemployment Rate (SEP)
10:00 EUR Euro-Zone Consumer Price Index Core (OCT A)
10:00 EUR Euro-Zone Consumer Price Index Estimate (OCT)

Thursday, November 1
07:00 GBP Nationwide House Px n.s.a. (YoY) (OCT)
09:30 GBP Markit UK PMI Manufacturing s.a. (OCT)
12:00 GBP Bank of England Bank Rate (NOV 1)
12:00 GBP Bank of England Inflation Report
12:30 GBP BOE's Carney speaks at press conference in London

Friday, November 2
09:30 GBP Markit/CIPS UK Construction PMI (OCT)

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