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Dovish Draghi Hurts Euro Pound (EUR/GBP) Exchange Rate Outlook

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Euro Pound (EUR/GBP) Exchange Rate Rises, but ECB Concerns Remain

The Euro Pound (EUR/GBP) exchange rate clawed back some of its losses on Friday, but ultimately remained on poor form after yesterday’s mixed-sentiment European Central Bank (ECB) rate meeting.

Investors were pleased to hear that the central bank will be tapering its quantitative easing (QE) scheme to an end after September this year, but news that the bank has also lowered its growth forecasts for 2018 and that a rate rise isn’t likely until after the summer of 2019 ultimately left the Euro trading lower.

Beyond this, ECB President Mario Draghi outlined in the following press conference that concerns have grown regarding the global trade situation, with tariff exchanges between the EU and the US leaving businesses somewhat uncertain.

Data on Friday was also slightly mixed, with the Eurozone’s trade surplus shrinking from 21.2b to 18.1b – below the forecast of 20.0b.

Saving the day somewhat, however, was the confirmed 1.9% rise in Eurozone consumer price inflation in May.

This final estimate lent a small measure of support for the Euro, but investors ultimately remained bearish.

Pound (GBP) Exchange Rates Supported by Retail Sales Strength

Despite some dips, the Pound remained on relatively strong footing against the Euro on Friday, supported by yesterday’s substantial rise in UK retail sales and capitalising on the global turmoil of US-China trade relations.

There is very little going on in regards to UK data today, but investors are hopeful that the World Cup 2018 will provide ongoing support for the UK retail sector, encouraging spending in food and drink and supporting economic growth.

Ian Gilmaritn, Head of Retail at Barclays echoed this sentiment:

‘The truth is that despite continued rumours of the demise of our retail industry, many retailers are simply getting on with the job and continuing to attract customers through their doors. Of course, we’re not going to have a heatwave and a royal wedding to help drive sales every month, but the World Cup kick-off should help supermarkets, in particular, maintain this momentum over the next month or so’.

Ultimately, the Euro suffering its worst weekly loss in 19 months provided support for the Pound.

Euro Pound (EUR/GBP) Exchange Rate Forecast: BoE Rate Decision in the Spotlight

Next week will feature the Bank of England’s (BoE) June rate decision, and whilst a rate rise is not expected at this meeting, investors are hopeful that the bank will lay the groundwork for a rise in August.

Investors will be paying particular attention to the bank’s sentiment on global trade relations, Brexit, and the UK’s Q2 economic recovery.

Whether this will be enough to prompt some hawkish forward guidance from the bank remains to be seen, but any sign of hawkishness could put the Euro Pound exchange rate under substantial pressure.