GBP/EUR: Euro Strengthens Ahead Of GDP Reading

The pound slipped versus the euro at the star of the week as Brexit continues to take its toll. The euro was showing resilience following the Spanish elections. The pound euro exchange rate dropped to a low of €1.1575.

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. 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.

The pound was one of the weakest performing currencies on Monday. The lack of progress in cross party Brexit talks was a concern early in the session for pound investors, as are the upcoming local elections. The Conservatives are heading for a bruising defeat in local elections. The public are fed up with the government’s handling of Brexit and are expected to punish Theresa May accordingly. Polls are expecting the conservatives to lose around 800 seats.

Theresa May is under pressure to get Brexit moving. However, talks with Labour have been slow moving and the toxic European election are looming. Pound traders are questioning Theresa May’s ability to navigate through such a difficult few weeks.

How does political stability boost a currency?
Political stability boosts both consumer and business confidence, which means corporations and regular households alike are more likely to spend money. The increased spending, in turn, then boosts the economy. Foreign investors prefer to invest their money in politically stable countries as well as those with strong economies. For foreign investors to put their money into an economy, they need local currency. As they acquire the money needed, the demand for that particular currency increases, which then boosts its value.

Today there is no high impacting data so investors will continue to watch the build up to local elections and any Brexit developments.

Eurozone Economic Sentiment Declines

The mood for the euro improved from last week, even as data remains dismal. The euro managed to brush off data that showed confidence in the bloc was at a two-year low. Most of the main indicators weakened, Economic sentiment dropped to the worst level since September 2016. Just the service indicator improved. This suggests that the eurozone economy is still faltering.

Today is a big day for eurozone data. There is a barrage of high and medium impacting releases. The most closely watched will be the eurozone GDP release. Analysts are expecting the bloc’s economy to remain steady in the first three months of this year, with growth of 1.1% year on year in the first quarter.

However, recent eurozone data has surprised to the downside as the bloc’s economy struggles in the face of slowing global growth and Brexit. Italy’s figures will be closely monitored as the eurozone’s third largest economy balances dangerously close to recession. Another weak reading for the bloc as a whole could send the euro sharply lower.

Why does poor economic data drag on a country’s currency?
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.

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