After the release of first post-BREXIT data on Friday morning which proved to be worse than predicted, British Pound has declined from best monthly levels. Friday’s July PMIs reveal that the health of UK’s economy has deteriorated beyond expectations which has put a heavy weight on the future Pound to Euro exchange rate forecast.
The pound to Euro rate saw a tempestuous week on account of greatly differing reactions to how BREXIT has affected UK’s economy. The rate first touched one of the highest points after BREXIT during this week but decreased sharply as the investors were given first official insight into the post-referendum conditions of Great Britain.
The preliminary PMI figures confirmed the fears of many economists as it reported contraction in all major sectors, with manufacturing falling from 52.1 to 49.1, Services slumping from 52.3 to 46.4, and the overall Composite print plunging from 52.4 to 47.7. The Market chief Economist Chris Williamson said:
‘At this level, the survey is signaling a 0.4% contraction of the economy in the third quarter, though much of course depends on whether we see a further deterioration in August or if July represents a shock-induced nadir. Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least.’
Following the G20 meeting held on July 24th, Opteckיs financial market analyst John Spencer reported:
Euro to Pound rate has remained at 0.8425 on Monday which is slightly lower than German IFO Business Climate’s forecast. Indeed, most of expected exchange rates by German for the month of July have come in more strongly.
Turning the equation around, Opteck informs that the Pound to Euro rate is trading at 1.1976. Even though the rate is within its recent ranges, it has become important for Pound to touch 1.2 milestone in order to establish that current progress in exchange rate is not temporary and nascent July recovery is about to extend as we enter the month of August in six days.
Euro, on the other hand, benefited from the reports of Friday and came out to be better than expected. Many had predicted that other countries of European Union will suffer more than British itself from BREXIT but the PMIs suggested otherwise. Mr. Williamson’s comments on how Eurozone has done better than expected at resisting potential damage from BREXIT and says:
The euro zone economy showed surprising resilience in the face of the UK’s vote to leave the EU and another terrorist attack in France. The overall rate of economic growth is largely unchanged, suggesting GDP is growing at a sluggish but reasonably steady annual rate of around 1.5%. It’s especially encouraging to see employment growth continuing to improve, with firms’ appetite to hire seemingly so far unaffected by the uncertainty caused by the Brexit vote, especially in Germany.
While Eurozone’s own GDP reports are due this Friday, investors continue to hope that the claim of “EU weathering potential damage better than markets expected” is proved to be true.
The GDP report, gathered with Eurozone’s June unemployment report, will majorly determine the fluctuations in Pound to Euro rates in coming week. The analysts, though, expect the rate to be below the mark of 1.2.
With this, the British Sterling remains highly pressurized and the exchange rates in coming week highly dependent on the expected reports and investors’ reaction to them.