The pound steadily lost ground versus the euro across the previous session. Brexit fears continued to cause concerns, meaning the pound dropped even more versus a weaker euro.
| What do these figures mean? |
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When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute. For example, it could be written: 1 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro. |
With no signs of progress in the Brexit camp, pound traders grew increasingly nervous in the previous session. As time keeps passing investors are painfully aware that a deal should be close to being on the table right now, when in actually fact it the two sides still appear to have considerable distance between them on key topics.
| What do these figures mean? |
|---|
|
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute. For example, it could be written: 1 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro. |
The lack of progress on Brexit was accompanied by a warning shot from the S&P rating agency. The global rating agency warned that a no deal disorderly Brexit would send the UK into recession. The report also said that unemployment would rise to 7%, above the level of unemployment in the financial crisis. It added that inflation would hit 4.7% and that house process would be expected to drop. In short, the report painted a very gloomy picture and echoed concerns put forward previously by business leaders and leading economists. According to these reports the UK needs a Brexit deal in order to prosper economically and right now that is looking like it might not happen.
| Why is a “soft” Brexit better for sterling than a “hard” Brexit? |
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| A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value. |
Today investors will continue to focus on Brexit developments or the lack thereof. They could also glance towards UK consumer confidence data. Analysts are predicting that the UK consumer is feeling less confident about the futures. Given Brexit uncertainty that is hardly surprising. It is however damaging, because consumers spend less when they feel less secure about the future.
Eurozone Inflation Data In Focus
The euro was broadly out of favour as Gross Domestic Product (GDP) data missed analyst expectations. Analysts forecast that the eurozone economy would grow 0.3% quarter on quarter and 1% year on year. Instead the eurozone economy grew just 0.2%, down from 0.4% on a quarterly basis and just 0.8% on an annual basis. The weaker figures sent the euro lower.
| Why does poor economic data drag on a country’s currency? |
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| Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall. |
Today market participants will look towards eurozone inflation data, which could help boost the common currency. Analysts are expecting inflation to have moved higher to 2.2% year on year and 1.1% on an annualised basis. Should this be the case the euro could move higher.
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