Monday, 24 September 2018

Sterling Hit by Serious Brexit Turbulence

Week of Weakness for GBP/EUR on Brexit Fears

Last week was one to forget for Pound traders, with GBP/EUR exchange rate gains made from Monday to Thursday being erased by a sharp drop on Friday.

Sterling initially rose when higher UK inflation and resilient retail sector stats came out, but gave it all away to Brexit fears sparked by an EU summit.

Prime Minister Theresa May attended a meeting of EU leaders in Salzburg but left under a cloud after her ‘Chequers plan’ for Brexit was roundly rejected.

Amid growing fears of a no-deal Brexit outcome, Mrs May held a conference on Friday and further devalued the Pound by declaring Brexit talks to be ‘at an impasse’.
Euro Outlook: Volatility ahead on Inflation and Expectations Data

Barring any surprise statements on Brexit this week, the Euro is likely to be the dominant currency in the GBP/EUR pairing until Friday.

This morning’s Ifo measures of German economic confidence could cause early EUR/GBP exchange rate losses, as all three surveys are expected to show falling sentiment.

The Euro might make additional losses on Thursday morning, as a spread of Eurozone economic confidence measures are also forecast to decline.

The main data releases to watch out for are September’s business and consumer confidence measurements, both of which are tipped to show falling figures.

What may be a bad week for the Euro could continue on Thursday afternoon, as some economists predict that Germany’s year-on-year inflation reading for September will drop from 2% to 1.9%.

Lower inflation in Germany risks causing lower inflation rates across the Eurozone, which in turn reduces the likelihood of a near-term European Central Bank (ECB) interest rate hike.

The UK will finally have a look in on Friday, with a consumer confidence reading followed by GDP growth rate figures.

The first of these, GfK’s consumer confidence data, could weaken Sterling if it shows lower consumer sentiment.

More positively, however, final UK Q2 GDP readings are tipped to confirm growth during the quarter – this could boost Pound Sterling demand.

Despite possible late-week GBP relief, however, the Euro still has a greater chance of rising against the Pound on Friday if German unemployment falls and Eurozone-wide inflation is reported higher.

Key Events

24th September

09:00 Ifo German Economic Confidence Surveys

27th September

10:00 Eurozone Business Confidence

10:00 Eurozone Consumer Confidence

13:00 German Inflation Rate

28th September

00:01 UK GfK Consumer Confidence

08:55 German Unemployment Rate

09:30 UK Q2 GDP

10:00 Eurozone Inflation Rate

Article courtesy of Foremost Currency Group