GBP/EUR Forecast Remains Positive – Rally Steadies as Trading Week Comes to an End
The Pound continued to recover against the Euro yesterday, reaching a weekly high after hawkish comments from Bank of England (BoE) policymaker Ian McCafferty. Mr McCafferty argued that the BoE should, at the very least, begin discussions regarding the withdrawal of its quantitative easing scheme, stating:
‘Given that other central banks are thinking about it, I think it would be remiss of us not to at least think about it.’
As this trading week draws to a close Sterling’s surge against the Euro has slowed after GBP/EUR hit a weekly high of 1.1364.
With continued mixed messages from the European Central Bank (EcB), the outlook for Sterling remains positive.
Euro (EUR) Flounders amid ECB Speculation
The Euro has struggled this week as ECB rate hike expectations wavered with inflation levels throughout the bloc continuing to disappoint.
Whilst Germany’s final year-on-year inflation figure matched estimates of 1.6%, France and Spain’s were both negatively revised, an indication that next week’s final Eurozone CPI figure could be revised lower.
This is essentially the crux of the headwinds facing the single currency; investors are hesitant to buy into the Euro with the chance that the European Central Bank (ECB) will tighten monetary policy remaining very slim.
This is unlikely to change much on Friday, especially as ECB members have continued to present mixed messages during the week. There is, however, potential for the Euro to gain some ground on two very significant releases next week.
UK and Eurozone final Inflation Figures on the Horizon
Next Tuesday will see the release of inflation figures for both the Eurozone and UK. Both reports have the potential to cause movement for their respective currencies.
Should British inflation come in higher than predicted, the Bank of England may be more inclined to tighten monetary policy – a possibility that would immediately increase demand for the Pound.
Meanwhile, with the European Central Bank’s (ECB) July policy decision taking place next week, investors will be studying the bloc’s final inflation figures very carefully.
GBP/EUR Volatility Likely with July’s ECB Policy Meeting Next Week
Whilst July’s ECB policy meeting most definitely won’t result in a rate hike, there is room for a hawkish soundbite to propel the single currency, especially if the central bank shows interest in winding down the quantitative easing scheme.
Conversely, if the ECB maintains a cautious tone, the GBP/EUR exchange rate could advance beyond this week’s highs.