The pound bounded higher versus the euro at the end of the previous week. The pound euro exchange rate rallied 1.3% on Friday, hitting a high of €1.2085. This was the strongest level that the pound has traded at against the common currency since July 2016. The pair closed the week at €1.1983. The pound has pushed back through €1.20 in early trade at the start of the week.
The Conservatives resounding victory in the general election has helped provide clarity over Brexit. Boris Johnson’s 80 seat majority means that Boris Johnson’s Brexit bill will be pushed through Parliament quickly and the UK will almost certainly leave the EU on 31st January with a deal.
With the election now out of the way, analysts are expecting the pound to hold its gains in the short term. However, looking further ahead the outlook for the pound remains cloudy, as trade talks take centre stage. As with all things Brexit, the trade talks are unlikely to be simple but rather long winded, difficult and fractious. The transition period is a year, until the end of 2020. This is unlikely to be sufficient time to arrange all the necessary trade deals.
This week is the last full trading week before Christmas so liquidity could start to dry up. However, the UK economic calendar is still busy this week with manufacturing and services PMI’s, ONS jobs and wages data, inflation numbers and the Bank of England’s monetary policy decision.
Today, investors are looking towards UK PMI data. Both the manufacturing and service sector PMI’s are expected to tick higher, although remain in contraction territory (below 50). Strong readings could boost the pound.
Will Eurozone PMI Data Lift Euro?
The euro was broadly in demand at the end of the previous week, just less so than the pound. This is because Brexit clarity and the avoidance of a no deal Brexit is also beneficial to eurozone economies.
Investors will turn their attention back to eurozone economic fundamentals. This week sees the release of December eurozone PMI’s, today and the German IFO survey later in the week. Investors will be looking for signs that the slowdown in the eurozone economies and particularly Germany is starting to bottom out. Stronger than forecast data could help lift the euro.
|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.