Thanks to some decent UK ecostats, the British Pound to Euro exchange rate edged higher from its worst levels on Thursday. However, as investors anticipated a major Brexit speech from UK Prime Minister Theresa May on Friday, the Pound has only had limited appeal against the Euro.
Since opening this week at the level of 1.1361, GBP/EUR has generally trended lower. On Wednesday the pair reacted to the latest Brexit developments by shedding almost a cent and hitting a two-week-low of 1.1269, but towards Thursday the pair neared the level of 1.1300 again.
Sterling recovered slightly from its two week lows on Thursday, due to UK data and mixed Euro strength.
Thursday’s UK data included Markit’s February manufacturing PMI, which was forecast to have slowed from 55.3 to 55.0. The figure only slipped to 55.2 and the report showed that new orders were rising again.
It boosted hopes that Britain’s economy was still seeing signs of resilience amidst the Brexit process.
Sterling was also slightly supported by January’s mortgage approval results, which beat 62k expectations and instead came in at 67.48k.
The Bank of England’s (BoE) consumer credit print slowed more than expected in January, from £1.58b to £1.357b.
Ultimately though, Sterling’s Thursday recovery was modest at best. Investors are still concerned about the latest deadlock over the Ireland to Northern Ireland border – especially as EU chief negotiator Michel Barnier reminded the UK that a post-Brexit transition period was still not a done deal.
Sterling’s gains were limited by a slightly stronger Euro, as Thursday’s Eurozone ecostats were largely impressive.
Spain’s final Q4 Gross Domestic Product (GDP) results came in at 0.7% quarter-on-quarter and 3.1% year-on-year as forecast, and the Eurozone’s January unemployment rate improved to 8.6% as expected too. What’s more, the previous Eurozone unemployment figure was revised down to 8.6%.
Markit’s final Eurozone manufacturing PMIs from February were better than expected. Germany’s PMI came in at 60.6 rather than the originally projected 60.3 and as a result the overall Eurozone manufacturing figure only fell from 59.6 to 58.6, rather than the projected 58.5.
However, the Euro’s strength has also been limited. Recent Eurozone inflation data has given investors no reason to expect much hawkishness from the European Central Bank (ECB) any time soon, and political events set for this weekend have left markets anxious too.
While Friday’s German retail sales or Italian Gross Domestic Product (GDP) results could influence Euro demand towards the end of the week, investors are likely to grow more anxious ahead of Sunday’s expected political news.
Sunday the 4th of March will see Italy hold its 2018 general election, and will also see the results of a poll to Germany’s SPD Party regarding a ‘grand coalition’.
As a result, when markets open on Monday there is likely to be a reaction to Italy’s election results, as well as the perceived chances of another German ‘grand coalition’ between CDU and SPD Parties becoming reality.
Friday’s UK construction data is unlikely to have a major impact on Pound trade, with investors likely to be focused on UK Prime Minister Theresa May’s Brexit speech instead.
If May clarifies the UK government’s stance on Brexit and a ‘softer’ Brexit begins to look more likely to markets, the Pound could recover much of its losses before the end of the week.
On the other hand, if the Brexit speech fails to impress, GBP/EUR is likely to end the week lower and Pound investors will look ahead to more Brexit developments as well as Monday’s UK services results.