The pound rallied to €1.1498 versus the euro on Wednesday, a fresh 6 months high. The pound then eased into the close snapping a four-day winning streak. The pound is inline to gain 0.7% against the euro this week, adding to a 1.2% increase in the previous week.
|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.h 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 GBPIn 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.
Brexit optimism has boosted the pound over recent sessions. Reports and rumours have been circulating that a Brexit deal is imminent. However, today ministers played down reports that a deal could be on the table as soon as Monday. Pound traders are increasingly hopeful that there will be an agreement over the coming weeks. But the problems will not end there. Even when a deal is on the table, this still needs to be voted on. Ex-Brexit Secretary David Davis has been quite open that he and other MP’s will vote against the deal in an attempt to force a better agreement. There are still many hurdles that Theresa May needs to overcome before a Brexit deal becomes a reality.
|Why is a “soft” Brexit better for sterling than a “hard” Brexit?
|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 there is a barrage of UK economic data for pound traders to digest. The most important release will be the GDP data. Analysts are expecting Britain’s economy to have grown by 1.5% in the third quarter, up from 1.2%. Quarter on quarter, analysts are expecting an increase of 0.6%, up from 0.4%. These are strong readings given Brexit uncertainty. Strong prints could boost the pound.
|How does strong jobs data boost the currency?
|It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the goods and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes the worth of the currency higher.
The euro rallied on the release of the European Central Bank’s Bulletin report over the health of the eurozone economy. The ECB’s report said that consumption in the region remained resilient, whilst the central bank also expects the labour market to continue expanding. The positive outlook sent the euro higher. However, the central bank also highlighted that sources of risk outside the eurozone had also grown over recent months, sending the euro lowentral Bank Economic Bulletin, before quickly giving back the lost ground. The ECB gave an upbeat reper.
There is no high impacting eurozone economic data due today. Euro traders must wait until Tuesday when ZEW confidence data will be released.
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