The Embattled GBP will Come Under Renewed Pressure Against the EUR on Friday…..
On Friday, 12 August, GDP growth for Germany, quarter on quarter and year on year for Q2 will be released. The consensus forecast for the quarterly growth rate is 0.2%, and the consensus forecast for the year on year growth rate is 1.5%. Germany is an integral component of the Eurozone and the performance of the German economy is a bellwether for the strength of the EUR. Additionally non-farm payrolls for Q2 2016 will be released in France (quarter on quarter). Other important economic data releases include the GDP growth rate for Italy (quarter on quarter for Q2 2016, and the GDP growth rate year on year for Q2 2016).
EA GDP Growth a Major Driver of EUR/GBP Pair
The EUR/GBP pair will also be heavily influenced by the Euro Area GDP growth rate. The consensus forecast for Friday, 12 August is 0.3% quarter on quarter estimated growth and the consensus forecast for year on year GDP growth is 1.6%. Provided the Euro Area growth rate dovetails with consensus forecasts, we are likely to see bullish movements for the EUR/GBP pair. Italian GDP has been lagging, owing to major financial upsets in the Italian banking system vis-a-vis non-performing loans (NPLs). The European Central Bank recently approved bailouts for Italian banks to prop up the financial system in that key European country.
As for the EUR/GBP currency pair, prospects do not look positive for the sterling. The EUR/GBP pair is currently trading at 0.8605, up 0.1168% or £0.0010. For the year-to-date, the euro has gained 16.79% on the sterling, having started 2016 at 0.7368. Over the past 1 month the currency pair has advanced by 1.02% and over the past 5 trading days it has advanced by 1.28%. The sterling has been weakened by multiple factors, all of which are swirling around the post- Brexit fallout. After plunging to 31-year lows against the greenback, and trending sharply lower against the JPY and EUR, currency traders are bearish on the GBP.
EUR/GBP pair inching toward 0.900
The recent move by the Bank of England to slash the interest-rate by 0.25% was particularly devastating to the GBP, and helpful to the EUR/GBP pair. We can expect the EUR/GBP to move towards its best currency cross rate for the year, but the actual performance is dependent on Friday’s economic data releases. Of all the data that will be published, German consumer price index figures (a key driver of GDP in Germany) and Euro Area GDP will prove telling. If these results are positive, the EUR/GBP pair will hit its straps and the EUR/USD pair will rise accordingly. Whether or not the EUR/GBP will hold above 0.86 is dependent on the resilience of the European currency.
It is unlikely that we will see much activity taking place for the remainder of the trading session on Thursday, 11 August in the United States and other markets that are trading behind Europe, as everyone will be eager to watch what happens on Friday. The EUR flirted with the 0.8610 level against the GBP early on Thursday, but the long-term prospects for this pair hinge on GDP, inflation and consumer sentiment figures. For now, we can expect the 0.8600 support level to hold, and the pair could inch towards 0.900 in the short term.
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