Pound to Euro Exchange Rate Stumbles from Highs on Persistent UK Uncertainties
Updated 16:45 BST 18/06/2018:
UK growth and Brexit uncertainties knocked the Pound to Euro (GBP/EUR) exchange rate back from its best levels later in Monday trade.
Investors calmed on the Eurozone outlook and the Euro (EUR) steadied, as last week’s European Central Bank (ECB) developments were ultimately unsurprising.
Sterling (GBP), on the other hand, is being pressured by a lack of optimism from economists about this week’s upcoming Bank of England (BoE) decision. According to Dan Smith from Thomas Miller Investment:
The Bank of England (BoE) holds a monetary policy meeting this Thursday (21 June) and is widely expected to make no change to interest rates. Incoming data continues to show that the UK economy is not firing on all cylinders. Consumer spending, employment and business confidence surveys have been fairly solid and supportive of growth, whilst industrial production and manufacturing have been exceptionally weak.
[Published 09:37 BST 18/06/2018]
Pound to Euro Exchange Rate Outlook Higher Following Last Week’s Central Bank News
A disappointingly cautious tone from the European Central Bank (ECB) was enough to make the Euro (EUR) a lot less appealing last week, and the Pound Sterling to Euro (GBP/EUR) exchange rate surged.
The pair’s movement may be limited ahead of Thursday’s highly anticipated Bank of England (BoE) policy decision.
GBP/EUR climbed from 1.1384 to 1.1440 last week and briefly touched on a June high of 1.1463 on Friday. At the time of writing in Monday, GBP/EUR remained close to the week’s opening levels.
Sterling (GBP) was unable to extend its gains though, as UK data remained too mixed to indicate that Britain’s economic outlook was improving.
The Euro has recovered slightly from last week’s worst levels as investors digest the latest central bank news. As the developments were not hugely surprising, the Euro could recover in the coming sessions if Eurozone data impresses.
Pound (GBP) Exchange Rates Hindered by Cut UK Growth Forecasts
While Britain’s economic calendar will be relatively quiet for most of the week, until Thursday’s Bank of England (BoE) policy decision, the British Chamber of Commerce (BCC) did publish its latest UK economic forecasts on Monday.
The group’s UK Gross Domestic Product (GDP) forecasts for this year and next year were downgraded further, from 1.4% to 1.3% in 2018 and from 1.5% to 1.4% in 2019.
According to the group’s Head of Economics, Suren Thiru, growth may be even worse than expected if the Brexit process goes poorly:
‘The risks to the outlook are on the downside. A messy departure from the EU would likely slow UK GDP growth further over the medium term. The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth than implied by the current forecast.’
However, the group also predicted that despite its weak growth outlook the Bank of England would still hike UK interest rates once in 2018. As a result, the Pound avoided major losses on Monday and investors continued to anticipate the BoE.
Euro (EUR) Exchange Rates Edge Away From Worst Levels Ahead of PMI Data
The Euro plummeted across the board last week in response to the European Central Bank’s (ECB) June policy decision.
The bank left monetary policy frozen as expected, as well as confirmed its plans to withdraw its aggressive bond-buying quantitative easing (QE) scheme by the end of 2018.
However, the bank showed caution in other aspects that disappointed more bullish Euro investors.
ECB President Mario Draghi noted that the bank did not plan to hike Eurozone interest rates at all until mid-2019 at the earliest.
The bank also showed concern about global trade threats from the US, and downgraded its 2018 Eurozone growth forecast.
As much of this news was unsurprising, investors did buy the Euro back slightly from its worst levels on Friday. Still, with recent Eurozone growth data falling short of expectations investors have had little other reason to buy the Euro again.
Pound to Euro (GBP/EUR) Forecast: Bank of England and Eurozone PMIs Ahead
Central Bank speculation will remain the focus of Pound to Euro (GBP/EUR) exchange rate trade this week, with the Bank of England (BoE) holding its June policy decision on Thursday and European Central Bank (ECB) bets likely to be influenced by comments and data.
Multiple ECB officials will be holding speeches throughout the week, including speeches from ECB President Mario Draghi every day from Monday through Wednesday.
Any surprise comments from ECB officials regarding monetary policy are likely to influence the Pound to Euro exchange rate outlook, but Sterling may hold its ground until Thursday.
The Bank of England is expected to leave monetary policy frozen in June, but the bank’s tone regarding recent UK ecostats could prove highly influential.
As the latest UK inflation and wage data has disappointed, some analysts doubt that the BoE will be hawkish enough to hike UK interest rates this year. This could cause GBP/EUR losses.
On the other hand though, if the bank is more optimistic than expected about UK growth, BoE interest rate hike bets could rise and the Pound to Euro (GBP/EUR) exchange rate outlook could strengthen.
Comments are closed.