The GBP/EUR Pair Tracks Higher
The GBP/EUR pair is currently trading at 1.133, and looking more bullish in January 2018. The pair has a 52-week trading range of 1.1259 on the low end and 1.1471 on the high-end. For the year to date, the GBP/EUR has appreciated from 1.1267 on January 1 to its current level, and while it has faltered over 1 year from 1.16, to 1.133, momentum is clearly on sterling’s side. Based on the technical indicators, the GBP/EUR pair is making some headway.
The 50-day moving average is 1.129 – below the current exchange rate. The 200-day moving average is on par with the current exchange rate at around 1.134. The value of sterling has appreciated sharply since September 2017, when it was plummeting towards parity with the EUR. A strong surge in sterling strength resulted in a period of consolidation and steady gains for the UK currency.
What Factors Are Driving Sterling Consolidation?
Short-term strengthening of the GBP has been fuelled by increasing optimism of the fundamentals of the UK economy. Brexit negotiations have been proceeding better than expected, despite several sticking points that remain. However, optimism over GBP strength is likely to meet headwinds in the form of the UK Halifax house price index which contracted in December, and prospects of a Fed rate hike in the US for 2018. A sharp appreciation in the USD is expected this year as various monetary and fiscal policy measures are likely to bolster the strength of the greenback. For example, the tax overhaul, deregulation, and increased economic activity in the US (rising imports and rising exports) are likely to continue given the strong performance of US bourses under President Trump.
EU Strength Shines Through
The Eurozone jobless rate recently plunged to a 9-year low, at just 8.7%. The unemployment rate across the EU has been falling since December 2016 when it was at 9.7%. The current level of 8.7% marks a 0.1% improvement from 8.8% in October 2017. The multiyear low is testament to the improving economic conditions in the EU. The European country with the lowest unemployment rate in November was the Czech Republic at 2.5%, followed by Germany and Malta at 3.6%. The country with the highest unemployment rate in the EU was Greece at 20.5% and Spain at 16.7%.
Several important economic indicators are slated to be announced in the UK in the coming weeks, including the following:
- Tuesday, 16 January 2018 – inflation rate year on year for December with a consensus forecast of 3%
- Wednesday, 24 January 2018 – claimant count change for December and the unemployment rate for November
- Friday, 26 January 2018 – the GDP growth rate quarter on quarter and year on year
- Tuesday, 30 January 2018 – the GfK consumer confidence report for January
Provided the UK economic indicators perform positively, GBP strength will be maintained. Any underperformance will be followed by a weakening of the GBP. On Friday, 3 January 2018, the EUR weakened somewhat because of lacklustre inflation data in the Eurozone. However, this was insufficient to boost the GBP/EUR, leaving the currency pair trading in a narrow range. Overall, there is significant optimism about the long-term prospects of the EUR. German factory orders data are positive, with 8.7% growth over the year. It does not appear that the EUR will be able to maintain strong momentum, given the low probability of monetary tightening with the ECB.
What is your perception of the GBP/EUR currency pair and its performance in Q1 2018? Will sterling appreciate relative to the EUR and the USD? What factors could hamper GBP momentum this quarter?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.