The pound euro exchange rate experienced high levels of volatility in the previous session. The pound initially sunk on political news flow, followed shortly after by the euro. The pound euro exchange rate concluded Thursday in positive territory, up 0.1% at €1.0855. Today the pair is flat as pound traders look towards a slew of UK data.
|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 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 pound continues to experience Brexit related volatility. On Thursday reports that Prime Minister Boris Johnson would delay a general election until 1st of November, the day after Brexit, weighed on the pound. This would clearly be too late to prevent a no deal Brexit.
Today pound investors will have a barrage of data to digest to distract from Brexit developments. The most important release today will be the UK GDP. Analysts are expecting the British economy to have stagnated with 0% quarterly growth. Year on year, analysts are forecasting that growth will be just 1.4% down from 1.8%.
So far this year economic growth has just about remained in positive territory as companies stockpiled for each Brexit deadline. The first quarter saw growth of 0.5% as companies stockpiled for the first deadline March 29th. April 12th , the second deadline saw a similar reaction with 0.4% GDP. With Brexit impacting each sector of the economy, even Bank of England Governor Mark Carney is echoing these expectations. A weaker than forecast reading could see the recession fears take over and pull the pound 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.|
Euro Falls As Italy’s Coalition Hangs On A Thread
The euro fell in the latter part of the previous session as heightened political tensions in Italy resulted in Deputy Premier Matteo Salvini calling for swift elections. Salvani said that a vote in Parliament should acknowledge that the current government, led by PM Giuseppe Conte no longer has sufficient votes to survive.
Tension in the Italian coalition have been ongoing since the coalition was formed a year ago. However these tensions have been escalating in recent weeks. To complicate the situation further, only on Monday, the Senate renewed its confidence in Conte’s government. Conte has also said that he won’t leave office without a fight. Political instability in Italy, the eurozone’s fourth largest economy could drag the euro lower.
|How does political risk impact on a currency?|
|Political risk drags on the confidence of consumers and businesses alike, which means both corporations and regular households are then less inclined to spend money. The drop in spending, in turn, slows the economy. Foreign investors prefer to invest their money in politically stable countries as well as those with strong economies. Signs that a country is politically or economically less stable will result in foreign investors pulling their money out of the country. This means selling out of the local currency, which then increases its supply and, in turn, devalues the money.|
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