Pound V euro: Economists confident positive Brexit news can revive GBP
THE pound is edging lower against the euro this morning, as some broad-based weakness in Sterling weighs on the pairing. The pound euro exchange rate is currently at around €1.116.
This rate is slightly down from this morning’s opening levels and around half a cent down from Tuesday’s best levels.
However economists appear to be warming to the pound as, according to the latest foreign exchange poll by Reuters, GBP may begin trading higher in the run-up to Brexit.
While analysts were mainly focused on the pound’s movement against the US dollar, they appear optimistic that sterling has room to move higher against most of the majors.
This is largely on hopes that the UK and EU will be able to make some headway in Brexit talks, with any positive progress likely to be welcomed by markets.
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ING’s Chris Turner and Viraj Patel said: “Given that GBP’s decline is more Brexit sentiment driven – rather than a reassessment of UK economic fundamentals – history suggests that GBP has the propensity to correct sharply higher on any good news.”
Meanwhile the euro continues to firm this morning ahead of the European Central Bank’s (ECB) latest rate decision on Thursday.
While the bank is not expected to alter interest rates tomorrow, markets are hopeful that the ECB will give some indication that it will wind up its sizeable stimulus programme later this year.
Economists expect that this may be done by removing its so-called easing bias from its statement.
History suggests that GBP has the propensity to correct sharply higher on any good news
This will see the ECB remove any suggestion that it could reverse the slowing of its bond buying programme in the future if policymakers felt it was necessary.
However the ECB is still likely to maintain its cautious policy stance.
The bank is likely to stress that the winding down of quantitative easing (QE) will be a gradual process in order to avoid any shocks to the market.
Looking ahead the main focus for currency markets over the next couple of days will undoubtedly be the ECB’s rate decision with the tone of the meeting likely to have a considerable impact on the GBP/EUR exchange rate.
The Bank of England explains the exchange rate
However the pound could also see some movement at the end of the week as the UK publishes its latest trade and production figures.
Investors are likely to welcome an expected drop in the UK’s trade deficit.
But it is forecasts of a rebound in British industrial production in January that are most likely to prompt a response from Sterling.
