GBP/EUR Weekly Outlook + Brexit Update

Good afternoon everyone.

The Pound saw some reaction to UK economic data last week, as Britain’s latest PMI data showed that economic activity was just above stagnation. For most of the week though, investors were hesitant to buy into Sterling. At the end of the week, UK Prime Minister Theresa May stepped down as Conservative Party leader as expected. The leadership contest to replace her and succeed her as Prime Minister officially begins today. Investors are anxious that her successor will be someone who advocates for a harder Brexit, which would worsen market fears that a no-deal Brexit could become reality. Analysts generally still believe that a no-deal Brexit is unlikely, as there will be attempts from Parliament to prevent this outcome. This is supporting the GBP/EUR exchange rate from falling even further, for now!

The next step in the conservative leadership contest will unfold later today, when candidates must declare at least eight nominations from fellow Conservative MP’s in order to stay in the race. This will probably result in many of the weaker candidates being knocked out. After that all candidates will need the votes of 17 Conservative MP’s to stay in the first round ballot and at least 33 or 10% of MPs to stay in the second round of voting. At the moment, the leading contenders are Johnson, Gove, and Hunt, but if that changes and one of the big names gets knocked out it could impact on Sterling exchange rates. Johnson appears to be in favour of endorsing a ‘leave at all costs’ Brexit on October 31. Michael Gove has a softer stance, aiming for a Canada-style free trade agreement and a possible further delay if necessary, which has infuriated the right of the Tori party. Jeremy Hunt has suggested he might be against leaving without a deal, although would so “with a heavy heart”.

On the Euro side of things, the Euro rallied last week in the wake of the ECB meeting as markets appear to have been expecting the ECB to strike a decidedly more subdued tone about the EU economy, and perhaps even expecting the ECB to lay the groundwork for yet further cuts to the interest rate. It could be that Draghi expands in more details about the stance communicated last week. I’ll be keeping an eye on the meeting of Eurogroup finance ministers in Brussels on Thursday, June 13. The meeting of the Eurogroup of the EU’s finance ministers could result in comments relating to monetary policy, the outlook for the economy or deeper economic integration are current hot topics to which the Euro currency is sensitive to and this could case the Euro to weaken or strengthen.

Also of importance will be any discussion over Italy's desire to break Eurozone rules on taxing and spending. The current Italian government wants to breach budget deficit rules to boost their economy, a move that will invite sanctions from the EU. The showdown between Italy and the EU is a widely seen as a concern for the future functioning of the common currency area. For now the issue appears to be in hand, but should the situation lead to a 'crisis' we could well expect the Euro to come under pressure. This is an issue to keep an eye on over coming weeks and months.

 

The Week Ahead

Sterling has begun the week on the back foot thanks to weaker than expected GDP data for the month of April. Brexit politics are still likely to have the greatest impact on Sterling this week, with unemployment data (Tuesday) and a speech from BoE Governor on Friday. For the Euro zone, the Euro Group meeting will be of interest to many. Economic data wise for the Euros zones main focus will be on Thursday with German Inflation data and also Euro zone Industrial production data. I believe most focus will be for the Head of the ECB’s speech on Wednesday morning which could be an opportunity for more details about last weeks ECB meeting.

GBP & EUR Weekly Movements

Market sentiment for the GBP/EUR rate is on a downward trend at time of writing. Sterling has begun the week weaker after this morning’s weaker than expected GBP data. A small but growing number of global banks are forecasting Sterling exchange rates to move lower in the coming weeks and month, suggesting political uncertainty and a slow down in the UK economy as the major risks for the UK currently. Keys levels to keep an eye out for will be the €1.1180’s If we see the rate move LOWER than this for a sustained amount of time, then the likelihood of the rate moving into the low €1.11’s will be high and a move towards €1.1080’s will be more likely.

 

GBP & EUR Weekly Movements


Market sentiment for the GBP/EUR rate is on a downward trend at time of writing. Sterling has begun the week weaker after this morning’s weaker than expected GBP data. A small but growing number of global banks are forecasting Sterling exchange rates to move lower in the coming weeks and month, suggesting political uncertainty and a slow down in the UK economy as the major risks for the UK currently. Keys levels to keep an eye out for will be the €1.1180’s If we see the rate move LOWER than this for a sustained amount of time, then the likelihood of the rate moving into the low €1.11’s will be high and a move towards €1.1080’s will be more likely.

Low Risk takers with pending exchanges that need to be made this MONTH, should consider making their exchange while the interbank rate is above or close to the €1.12’s - €1.1250’s  The GBP/EUR exchange rate looks like it will struggle to break this current downward trend with economic data for Q2 now looking like it could underperform. With Boris still way out in front to be next PM, his current stance on Brexit is not something the markets will welcome. 

Medium Risk takers with pending exchanges that need to be made this MONTH, same as above. 

High Risk takers with pending exchanges that need to be made this MONTH, same as above. There’s very little to look forward to on the UK side of things this month. There’s a lot more important economic data due next week but if todays GDP data is a sign of things to come then it will most likely not lend much support to Sterling exchange rates. 

 

Tuesday, June 11th 
09:30 GBP ILO Unemployment & Wage Data (MAY)
09:30 GBP Employment Change 3M/3M 
09:30 EUR Euro-Zone Sentix Investor Confidence (JUN)
10:00 GBP BOE's Tenreyro speaks at Conference in Lisbon
10:00 GBP BOE's Saunders, Broadbent speak in Parliament.

Wednesday, June 12th 
09:15 EUR ECB President Draghi Speaks in Frankfurt.
10:00 EUR ECB Vice President Guindos Speaks in Frankfurt
00:01 GBP RICS House Price Balance (MAY)

Thursday, June 13th 
07:00 EUR German Consumer Price Index
10:00 EUR Euro-Zone Industrial Production

Friday, June 14th
06:00 EUR German Wholesale Price Index
12:55 GBP BOE Governor Mark Carney speaks in London.

Red = Major market effect, Orange = Medium market effect & Green = little market effect. 

GBP/EUR Daily Performance

  • High of the day so far is €1.1260
  • Low of the day so far is €1.1198
  • Resistance at €1.1250’s/60’s
  • Support at €1.1180’s
  • Daily Trading Range €1.11’s - €1.13’s
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