Published: 31 Jan at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, USA, Germany, Ireland,
A slew of underwhelming Eurozone ecostats published on Thursday did little to make the Euro less appealing, as the British Pound to Euro (GBP/EUR) exchange rate failed to sustain a notable recovery of this week’s losses so far. The Pound remained broadly unappealing due to revived fears that Britain could be headed towards a No-deal Brexit.
This week so far, a combination of Brexit fear and US Dollar (USD) weakness has made it easier for the Euro to push the Pound lower. GBP/EUR opened the week at the level of 1.1577 on Monday and has already shed a cent and a half, trending closer to a weekly low of 1.1409 at the time of writing on Thursday.
On Tuesday, hopes that the UK would be able to avoid a worst-case scenario No-deal Brexit faded slightly as UK Parliament voted down amendments that would give MPs stronger influence over the direction of Brexit.
While MPs voted in favour of sending the government back to negotiate an alternative to the Irish backstop plan, the EU was quick to assert that there was no alternative and that negotiations would not be reopened.
With under two months to go now until the UK is set to formally exit the European Union, investors are becoming highly anxious that the government is running out of time to properly implement a Brexit plan.
Essentially, mere weeks after No-deal Brexit fears notably lightened, No-deal fears have returned and have been among the primary causes of Pound weakness this week.
While there is still strong expectation that the government will formally delay the Brexit process, amid a lack of a clear path to a resolution over Brexit the Pound’s appeal is likely to remain limited.
As a result of the Pound’s broad weakness, it was unable to recover even against a weaker Euro.
Investors have been buying the Euro amid weakness in the shared currency’s rivals, such as the Pound and US Dollar (USD). The Federal Reserve’s dovish tone in its January policy decision on Wednesday was the primary cause of the latest USD weakness and EUR strength.
Due to the Federal Reserve news keeping the Euro appealing, the Eurozone’s latest ecostats had little impact on the shared currency. This was despite much of Thursday’s Eurozone data coming in short of expectations.
German retail sales contracted at a shocking -4.3% month-on-month in December, with the yearly figure slumping from 1.9% to -2.1%. Germany
’s unemployment change was smaller than forecast too.
The Eurozone’s overall Q4 growth rate and December unemployment results met expectations, which ultimately did little to influence the Euro outlook.
Is the Pound to Euro exchange rate likely to recover this week’s losses before markets close tomorrow? That’s unlikely unless there is some kind of development regarding the Brexit process.
Investors are unlikely to buy the Pound much unless there are signs that the formal Brexit date will be delayed, or that there could be a breakthrough in Brexit talks. A change in the government’s negotiated Brexit deal is not expected though.
With no major Brexit developments expected for the rest of the week, the Pound to Euro exchange rate may be driven more by Eurozone ecostats tomorrow.
Friday will see the publication of the Eurozone’s final January manufacturing PMI stats from Markit, as well as the Eurozone’s January Consumer Price Index (CPI) inflation rate projections.
Eurozone inflation is expected to have slowed in January. If inflation is more resilient than expected, European Central Bank (ECB) interest rate hike bets may rise and the Euro could see stronger demand.
Further shifts in demand for the US Dollar (USD) could also influence the Pound to Euro exchange rate towards the end of the week.
As of Thursday, 31st January 2019, the Pound Sterling currency rates mentioned within this news item were as follows:
GBP EUR exchange rate was 1.145, GBP USD exchange rate was 1.3106,