Dovish Signal from BoE Governor Offers Euro Pound Sterling (EUR/GBP) Exchange Rate Rallying Point
Unexpectedly dovish comments from Bank of England (BoE) Governor Mark Carney prompted the Euro to Pound Sterling (EUR/GBP) exchange rate to rally sharply on Thursday.
As Carney acknowledged that a rebound in economic growth is not guaranteed, in spite of business confidence picking back up in the wake of the general election result, this left Pound Sterling (GBP) under pressure.
This doubt over the speed of any potential recovery in growth suggests that the BoE are increasingly leaning towards further monetary easing, raising the odds of imminent action.
While Carney is due to depart the BoE in March markets still saw reason to bet that an interest rate card could be on the cards.
As Carney noted:
‘There are downside risks from global growth and the possibility that uncertainties over future trading relationships could remain entrenched. With the relatively limited space to cut Bank Rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response.’
German Industrial Production Rebound Lifts Euro Demand
Demand for the Euro (EUR), meanwhile, recovered in response to a better-than-expected month of German industrial production.
With output rebounding 1.1% on the month in November worries over the underlying health of the German economy temporarily eased, encouraging the single currency to return to a positive footing.
However, EUR exchange rates struggled to gain any significant traction on the back of the production data as the latest German trade figures proved discouraging.
A sharp -2.3% monthly decline in export volumes put particular pressure on the Euro, with the deterioration highlighting the economy’s vulnerable to weaker global trade growth.
While anxiety over the global growth outlook has diminished thanks to a lack of further escalation in US-Iran tensions this was not enough to keep EUR exchange rates from weakening.
The relative strength of the US Dollar (USD) also put a dampener on the single currency, especially as markets fear the potential for further US tariffs against Eurozone produce.
Pound Braces for Latest Monthly UK Gross Domestic Product Data
The mood towards the Pound could sour further on Monday with the release of November’s UK gross domestic product report.
While the monthly growth rate is only expected to stagnate this may still cast fresh worries over the economic outlook as markets brace against the potential for a weak fourth quarter gross domestic product.
After Mark Carney’s comments, any fresh signs of weak growth could put a significant dampener on GBP exchange rates as the odds of a potential interest rate cut appear to grow.
Further negative readings from the corresponding manufacturing and industrial production figures could put additional pressure on the Pound.
On the other hand, if the growth data demonstrates a greater degree of resilience in spite of Brexit-based jitters and political uncertainty ahead of December’s general election this may drag on the EUR/GBP exchange rate.