Thursday, 5 January 2017

Pound/Euro exchange rate update

Good afternoon,

It has been a fairly choppy day for the GBP/EUR cross with the currency pair bouncing between €1.1650 and €1.1750 as you can see from the graph below.

GBP/EUR graph





For the third consecutive day the UK economy published a stronger than predicted PMI reading, with this morning's Services PMI survey adding to the positive Construction and Manufacturing readings we saw earlier in the week.

Today's data is yet another example of how the UK economy is still growing and performing above expectations following Britain's decision to leave the European Union in June.

However, the positive economic numbers are having very little impact on the value of sterling, as concerns over Brexit continue to weigh heavily on the pound.

Under normal conditions three consecutive days of strong data would usually strengthen a currency, but with political events still driving the currency markets and talk of Brexit set to dominate the headlines for the next couple of years, it could be sometime until we see the pound really benefit from positive eco-stats.

So what will drive the value of the pound in the short-term? 


If the UK economy can continue on its current path then it will provide the pound with a solid base, however, the biggest move is likely to come from the government triggering Article 50 in order to start official divorce proceedings from the European Union.

At the moment it is still unclear as to what stance Theresa May and her party are going to take when negotiating with their European counterparts.

The main question that needs answering is will they opt for a "Hard" of "Soft" Brexit? A "Hard" approach could see the UK give up access to the single market in order to focus on immigration issues the country voted for, and is likely to cause the pound to fall across the board.

A "Soft" Brexit would give investors some much needed confidence as it will probably see the UK keep some kind trade deal with the EU. The soft approach could see the pounds value rise, and coupled with the uncertainty surrounding the upcoming elections in Europe we could witness a positive move for the GBP/EUR cross.

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