EUR/GBP - page 9
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British Pound Sterling (GBP) Still Worst Performing Currency Of 2016
GBP EUR gains have largely been attributed to a weak Euro exchange rate complex after ECB news, as well as the latest UK trade balance result showing a major deficit reduction.
Less positive has been the GBP USD relationship, which has deteriorated as US oil prices have risen. A further GBP disadvantage in the pairing has been caused by the UK construction output stats for October dropping on the year.
The Pound’s recovery has hit the rocks this week, after hitting a near 5-month high of 1.2041 against the Euro (GBP EUR) on Sunday evening and trading above 1.27 versus the US Dollar (GBP USD) for the first time since July. Indeed, the Pound exceeded forecasts in November, climbing 2.2% against the Dollar and posting its first monthly gain since April.
The UK currency has recovered 5% of the 20% losses suffered in the months that followed the EU referendum result and in truth, the recent relief rally has been more of a case of the focus going elsewhere following events in the US and Italy.
The victory for Donald Trump in the presidential election coupled with Brexit and the Italian referendum defeat points to an anti-establishment movement in western politics.
Of course, there was a sense of stability following the High Court decision that the government’s Brexit deal should be given Parliamentary approval. That was appealed in the Supreme Court and the Pound has come under pressure this week due, in part, to speculation that the decision could yet be overturned and Hard Brexit becomes more likely.
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EURGBP has burst up through 0.8400 to post 0.8421 12 Dec
A turnaround in risk sentiment as equities/oil turn lower sees GBPJPY finding some sellers again and that's lifted EURGBP through 0.8400 res/offers to test next area around 0.8425
Pound to Euro Rate: Beware a Capitulation Lower
The British Pound is recovering from recent lows against the Euro thanks to some better-than-forecast employment and earnings data but we hear from one leading analysts that the GBP/EUR could be destined to fall as low as 1.11 again.
The GBP/EUR exchange rate trades at 1.1925 in the wake of the release of UK employment and earnings data.
This constitutes a recovery for the exchange rate which was trading as low as 1.1880 earlier in the day.
Despite the small bounce, the pair appears to be losing the required conviction to break above the key 1.20 region that we have been eyeing for a number of days now.
We would have to assume that unless the US Federal Reserve and/or the Bank of England are able to stimulate the required buying interest this could be a temporary top for the pair.
Analyst Robin Wilkin at Lloyds Bank Commercial Banking maintains a bias for a move back towards 1.11 but acknowledges that the pair needs to fall below key support at 1.1668-1.1614 to confirm such a move.
So those with an eye on the exchange rate should watch this area with keen interest.
“For now the trend from the 7th October highs remains intact,” says Wilkin saying a break of the 1.2121 resistance region would force him to review his medium-term outlook for a range between there and 1.11.
The immediate risk would be for a steeper rise towards 1.25-1.2579, but it would also call into question Lloyds' longer-term analysis that can still see a re-test of the 1.0204 lows set back in 2008.
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I shorted on this pair again, I think it will decline towards 0.8230.
An Upgrade for Pound to Euro Exchange Rate from J.P. Morgan's Meggyesi
J.P. Morgan have upgraded their GBP/EUR exchange rate forecast for the first half of 2017 but kept their sub-1.10 forecast for year-end intact.
The call is made in J.P. Morgan's Global FX Strategy 2017 note to clients in which they were tasked with “surveying the rubble” that is GBP's 2016 and making a call for 2017.
The Brexit vote sparked the second-worst GBP crisis of the last four decades for the currency, oscillating in severity between the ERM (-18%) and banking crises (-30%).
"The Pound's alter-ego, the Great Britain Peso, was on show this year as the UK voted unexpectedly to exit the EU, thereby throwing the political and economic landscape into turmoil. We had put the odds on Brexit at around one-third, but had nevertheless recommended hedging the outcome from last November because of the severe, consequences for GBP of Brexit," says Paul Meggyesi at J.P. Morgan.
In the event Meggyesi acknowledges his team were too sanguine about the fall-out – their stretch scenario had GBP dropping by another 10%, whereas the actual peak-trough fall in the trade-weighted index from last November was more than double at 22%.
This establishes Brexit as the second-worst GBP crisis in the last forty years
Over the coming year we are told by Meggyesi to expect Sterling to remain sensitive to the distinction between hard vs soft Brexit which boils down to the degree of single market access, including transitional trade arrangements.
“Risks to GBP are two-sided as the hard-Brexit risk premium put in after the Tory Party conference has been removed. GBP could rise or fall 5-10% if the government keeps or rejects single market access (EEA vs WTO), and drift uneasily if the government seeks sector-specific transitional deals,” say the J.P. Morgan analyst.
Analysts at the world’s largest full-service investment bank say they have revised their GBP forecast to reflect cross-currents from the confluence of political developments in the UK, US and Europe.
This makes for a heady mix of variables that makes currency forecasting incredibly difficult.
Undaunted by this, J.P. Morgan have taken a stab and announce they have revised down their GBP/USD forecasts to account for a stronger Trump-USD.
The end-2017 forecast is at 1.26 versus a previous 1Y forecast of 1.29.
Analysts have revised down their EUR/GBP forecast, partly as a mechanistic consequence of a lower EUR/USD forecast, but also to reflect the rotation of political risk to mainland Europe in 1H17.
“European political risk should fade by mid-year and assuming that Article 50 is invoked without too much delay or parliamentary control over the negotiation process, attention should revert to the messy and uncertain business of Brexit in 2H,” says Meggyesi hinting at why the second-half of 2017 will likely see the Euro rise in value against Sterling.
“We had thought EUR/GBP would peak at 0.95 in 1Q17 but that forecast is now cut to 0.86 and the rally in EUR/GBP is delayed until 2H17,” say analysts.
From a GBP into EUR perspective this equates to an upgrade from 1.0526 to 1.1629.
However, the end-2017 forecast is pinned at 0.91.
This equates to 1.0989 in GBP/EUR terms.
Those with foreign exchange payments due in 2017 would do well to bring these estimates up with their currency provider when discussing the relevant buy and stop orders needed to ensure they get as much currency as possible in coming months.
“Conviction level in the forecast is low and much will hinge on the type of Brexit that the government aims for,” say J.P. Morgan reflecting, quite rightly, how difficult it is to forecast a currency when the variables are political.
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