Despite a lack of fresh market reasons to buy the Pound this week so far, the Euro to British Pound (EUR/GBP) exchange rate slipped on Monday. The Euro remained unappealing thanks to speculation that a potential Turkish Lira (TRY) currency crisis could have a negative influence on Eurozone banks.
Last week saw the EUR/GBP exchange rate climb from 0.8938 to the level of 0.8979, drawing nearer the 2018 high of 0.9022 briefly seen earlier in August. However, since markets opened on Monday EUR/GBP quickly tumbled due to a lack of strength in Euro trade and at the time of writing the pair trended in the region of 0.8950.
EUR Continues to Feel Drag from Turkish Currency Concerns
Over the past few weeks, the Euro has become increasingly correlated to the strength of the Turkish Lira (TRY) as some economists and European Central Bank (ECB) officials have warned about the Lira’s potential impact on Eurozone banks.
Last week saw the Turkish Lira (TRY) plummet sharply across the board. Investors sold off the Turkish currency amid a variety of factors.
This included concerns about Turkey’s economic outlook, the Turkish government’s insistence on low interest rates, and rising diplomatic tensions between the Turkey and the US.
As the Turkish Lira plummeted and investors became concerned that its sharp falls could hit ‘contaminate’ Eurozone banks, investors sold the Euro too.
The Euro strengthened again towards the end of last week when the Turkish Lira rebounded from its worst levels, but this week those concerns about Turkey’s currency crisis persisted and the Euro failed to hold its ground.
According to Viraj Patel, Strategist from ING:
‘The Euro is starting to reflect greater short-term domestic political angst,
Investors will be cautious over Turkey’s medium-term economic plan, while the next month or so will also see a narrower focus on the risks around Italian budget,’
Monday also saw the publication of Germany’s July PPI results, which fell short of forecasts month-on-month with a result of 0.2%, rather than the predicted 0.4%. This may have put extra pressure on the Euro.
Investors appeared to largely brush over June’s Eurozone construction output report, which beat forecasts by improving from a revised 2.0% to 2.6% rather than the predicted 1.6%.
GBP Recovery Attempts Capped by Brexit Jitters
Demand for the Pound improved on Monday, thanks largely to weakness in rivals but also the appeal of buying the cheap Brexit-battered Pound back from its cheapest levels in profit-taking.
There wasn’t much in the way of news or fresh support for the Pound on Monday, as investors largely bought Sterling back following the losses it saw last week.
Still, the Pound’s recovery was limited as various factors continued to weigh heavily on the British currency.
Markets and UK businesses remain highly anxious about the possibility of a worst-case scenario ‘no deal’ Brexit, as the March 2019 Brexit date approaches and the UK appears no closer to having reached a Brexit deal with the EU.
The possibility that the UK could leave the EU without any kind of deal has panicked investors in recent weeks, and even stronger than expected UK data has been unable to make the Pound more appealing as a result.
EUR/GBP Forecast: Eurozone Growth Stats and Brexit News in Focus
Sterling was able to recover just slightly on Monday amid a lack of developments throughout the day, but with Britain’s economic calendar quiet this week the Pound’s movement is still most likely to be influenced by potential Brexit developments.
If there are signs from the UK government or EU negotiators that progress is being made in Brexit talks, this could improve Sterling support.
On the other hand though, if more UK or EU officials hint that a ‘no deal’ Brexit is becoming closer to reality, the Euro to Pound exchange rate could climb back towards its best 2018 levels again.
Tuesday will see the publication of Britain’s July public sector net borrowing results and August industrial trends data from the CBI. These are unlikely to be particularly influential.
In terms of data, Euro to Pound exchange rate investors will be anticipating the Eurozone’s August PMI projections, due on Thursday, as well as Friday’s German Gross Domestic Product (GDP) growth stats.
Of course, any developments in Turkey regarding the Turkish Lira’s (TRY) recovery could continue to influence the Euro to Pound exchange rate too.
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TAGS: Euro Pound Forecasts