Due to a stream of disappointing Eurozone ecostats published over the past week, the British Pound to Euro (GBP/EUR) exchange rate surged towards the end of Wednesday’s European session on the latest Brexit speculations.
Despite mixed demand for Euro rivals, a weaker economic outlook has left the shared currency without strong support. GBP/EUR surged from 1.1196 to 1.1328 last week on Brexit hopes and have already climbed to trend near a high of 1.1490 at the time of writing this week. This was the best level for GBP/EUR for over two months.
Ahead of Thursday’s anticipated European Central Bank (ECB) policy decision, at which the bank is expected to take a more cautious stance on the Eurozone’s economic outlook, the Euro is broadly unappealing.
Investors have had little reason to buy the shared currency in recent sessions as analysts continue to forecast a weaker economic outlook for the Eurozone, and Eurozone data fails to impress.
This has made it much easier for the Pound to advance, as fresh Brexit speculation further bolsters market demand for the British currency.
Investors bought the Pound last week on hopes that a stronger say over the Brexit process from UK Parliament would make a worst-case scenario No-deal Brexit less likely.
This week, investors have kept buying Sterling on further signs that UK politicians will do what they can to prevent a No-deal Brexit – such as forcing the government to delay the formal Brexit date.
Britain’s opposition Labour Party has indicated it could support a plan to delay the formal Brexit date in order to avoid a worst-case No-deal outcome.
As markets have become more confident that the plan will be popular enough among MPs to pass, the Pound saw a surge in demand and No-deal Brexit fears lightened.
Sterling also found domestic support on Tuesday, in the form of Britain’s latest job market stats. UK wage data was particularly impressive and printed at its best level in 10 years.
Analysts predict Sterling’s potential for gains is limited as a delay to the Brexit date is far from being a solution to how the process will actually unfold.
Sterling was able to gain much more easily versus the Euro, as this week’s Eurozone data has disappointed investors and continued to indicate that the Eurozone’s economic outlook is weakening.
Wednesday saw the publication of France’s January business confidence report, which saw the previous figure revised lower from 104 to 103, as well as the Eurozone’s disappointing overall consumer confidence projection.
Eurozone consumer confidence is projected to have worsened from -6.2 to -7.9 in January, rather than the predicted -6.5.
These disappointing figures, combined with a forecast from the International Monetary Fund (IMF) cutting Europe’s growth outlook, made the Euro unappealing and the Pound to Euro exchange rate was more easily able to trend near two-month-highs.
While Brexit developments and uncertainties will continue to influence the direction of Pound movement, influential Eurozone data and the European Central Bank’s (ECB) latest policy decision could drive the Pound to Euro exchange rate tomorrow.
The Eurozone’s January PMI projections from Markit will be published and will give investors a better idea of how the Eurozone economy is performing this month.
The data is expected to have improved slightly over December, but if the data falls short of expectations GBP/EUR could trend even higher towards the end of the week.
Stronger Eurozone ecostats would make it easier for the Euro to regain some of this week’s losses.
Of course, the European Central Bank (ECB) policy decision could be even more influential.
Analysts expect the bank will ramp up caution about slowing global growth, but if the bank shows any signs that it could hike Eurozone interest rates in 2019 the Euro would see a jump in demand.
If the bank is more dovish about the Eurozone’s monetary policy outlook than expected though, there may be further gains ahead of the Pound to Euro exchange rate.