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Central Bank Bets Boosting Euro to Pound Sterling Exchange Rate Outlook

European Central Bank

Euro to Pound Exchange Rate Holds Ground after Mid-Week Slide

The Pound (GBP) has rebounded slightly from lows since the middle of the week but the Euro to Pound Sterling (EUR/GBP) exchange rate is holding its ground today. The Euro (EUR) continues to benefit from weakness in rivals and central bank speculation.

In yet another bullish week for EUR/GBP, the pair has spent the entire week trending higher.

EUR/GBP opened this week at the level of 0.8601 and quickly jumped, briefly touching a high of 0.8741 in the middle of the week. This was the best level for EUR/GBP since mid-October 2019.

EUR/GBP has since slipped back from those highs but the pair remains over a cent above the week’s opening levels. At the time of writing, EUR/GBP is trending near the level of 0.8683.

It remains a hectic period for forex markets. Coronavirus news, central bank speculation and Brexit developments will drive the Euro and Pound outlooks going forward.

Euro (EUR) Exchange Rates Supported by Strong German Data and Rival Weakness

The Euro has once again been among the strongest major currencies in the past week.

With its biggest rivals the Pound and US Dollar (USD) plunging on coronavirus jitters and rising central bank rate cut bets, the Euro has capitalised on those losses.

Due to the Eurozone’s strong surpluses and its low interest rates, the Euro is currency being considered a fairly safe currency and is being used as a funding currency as well.

On top of benefitting from this and rival weakness, this week’s Eurozone data has been fairly good as well. Yesterday’s German construction PMI rose to 55.8 and today’s German factory orders report rebounded to a stronger than forecast 5.5%.

Expectations for coronavirus impact are dampening hopes for a German factory rebound to continue though. According to Oliver Rakau, Chief German Economist at Oxford Economics:

‘This small good news is likely only a small interlude ahead of the corona disruptions looming in March/April’

Pound (GBP) Exchange Rates Steady but Lacking in Fresh Support

The Pound (GBP) was battered over the past week by returning hard Brexit jitters and rising Bank of England (BoE) interest rate cut bets.

Three major central banks have cut rates to protect from potential Covid-19 this week. This includes an emergency rate cut from the Federal Reserve.

As a result, speculation briefly surged that the Bank of England might also be pressured into making an emergency rate cut ahead of its planned policy decision later in the month.

For now though, the bank’s dovish tone lacks urgency. This has softened bets of an emergency cut and the Pound has rebounded. According to Analysts at MUFG:

‘(Bailey’s remarks) signal that the BoE is not yet at the point to pull the trigger on further easing but we still expect sufficient evidence will be in place to take policy action at their next policy meeting on the 26th March.’

Still, the Pound lacks the drive to recover further. BoE rate cut bets remain high, and this week’s Brexit negotiations haven’t given investors much to be optimistic about.

Euro to Pound (EUR/GBP) Exchange Rate Outlook Focused on European Central Bank Next Week

While the chaotic central bank speculation of the past week has calmed for now, further coronavirus developments will likely continue to dominate the market’s outlook.

If Covid-19’s spread outside of China continues to pick up speed, concern over how it could impact global activity will only grow.

As a result, investors may be closely watching upcoming data for signs of economic resilience.

Slews of key Eurozone data is due for publication throughout the coming week. German trade data is due Monday, followed by Eurozone growth on Tuesday. UK trade and growth will be published on Wednesday,

However, perhaps the week’s biggest event will be Thursday’s European Central Bank (ECB) policy decision.

There is high speculation that the ECB could be pressured into easing monetary policy in some way, perhaps even cutting interest rates. If the ECB is more dovish than expected, the Euro could give up much of its recent strength.

The Euro to Pound (EUR/GBP) exchange rate outlook could also be influenced by any notable Brexit developments in the coming week.