Pound to Euro Exchange Rate Slips Ahead of BoE Decision on Brexit Uncertainties
Investors are hesitant to buy the Pound (GBP) this week ahead of Thursday’s anticipated Bank of England (BoE) policy decision meeting. On top of this, the Euro (EUR) has been supported by signs of progress in Eurozone integration plans.
After surging from near a low of €1.1331 to the week’s closing level of €1.1440 at the end of last week, GBP/EUR has now lost most of last week’s gains. At the time of writing on Wednesday morning, GBP/EUR was trending near the region of €1.1365.
Fresh Brexit obstacles have kept the Pound looking unappealing, alongside a lack of supportive factors in UK ecostats recently. Bank of England interest rate hike bets are mixed and Sterling trade will likely remain calm until Thursday’s BoE decision.
Even the Euro has been able to climb against Sterling this week, despite continued pressure from a cautious European Central Bank (ECB) outlook.
Pound (GBP) Exchange Rates Limp as Brexit Uncertainties Keep Currency Suppressed
Amid a lack of notable UK economic data being published this week, Pound trade has had little to go on besides last week’s disappointing UK inflation and wages results and strong retail sales stats.
Investors had hoped that the stronger retail sales stats indicated Britain’s economic outlook was strengthening again, following a weak performance in Q1.
However, analysts took mixed tones regarding the retail sales data and as a result markets are looking forward to hearing the Bank of England’s (BoE) latest views on the economy during its policy decision on Thursday.
On top of economic concerns, this week has seen the UK government’s Brexit plans face multiple obstacles in Parliament. This has kept additional pressure on Sterling trade.
On Monday, the House of Lords knocked down a Brexit bill in favour of an amendment asking to give MPs a more ‘meaningful vote’ on any final deal.
Today, the Brexit bill once again enters the House of Commons for another showdown. It is being described as a chance for MPs to side with either the House of Lords or the government.
Euro (EUR) Exchange Rates Supported by Hopes of Eurozone Reform
The Euro’s strength versus the Pound was limited earlier in the week, as cautious comments from the European Central Bank (ECB) weighed on the shared currency.
Last week, the Euro saw a broad selloff after the ECB announced it did not plan to hike Eurozone interest rates until mid-2019 at the earliest.
On Tuesday the Euro saw further pressure, as ECB President Mario Draghi reminded markets that the bank was content to remain patient on monetary policy until Eurozone inflation improved.
Wednesday saw a slight boost in Euro demand though, as Germany and France appeared to make progress in anticipated Eurozone reform plans.
German Chancellor Angela Merkel and French President Emmanuel Macron made a joint announcement for a Eurozone budget. Macron said on Tuesday:
‘It will be a real budget, with annual revenues and spending,
This is a political commitment we make together which will require technical work at the ministerial level by the end of the year, and then indispensable treaty change the year after.’
Pound to Euro (GBP/EUR) Forecast: Bank of England (BoE) Decision Tomorrow
The Bank of England’s (BoE) June policy decision is this week’s biggest event and is most likely to influence the Pound to Euro (GBP/EUR) exchange rate outlook.
Following last week’s surprising falls in UK inflation and wages, as well as the surprising jump in UK retail activity, investors expect the BoE to give its updated view on Britain’s economy.
If the bank remains optimistic that Britain’s economic situation is still improving and will be more resilient later in the year, the Pound is likely to strengthen as Bank of England interest rate hike bets rise.
On the other hand, if the Bank takes a more cautious stance due to weakening inflation and wages, the Pound could slide further and BoE interest rate hike bets would fall.
Eurozone data is also likely to have an impact on GBP/EUR trade towards the end of the week.
The Eurozone’s June consumer confidence survey projection will be published on Thursday, and Friday’s Eurozone PMI projections for June would definitely impact the Pound to Euro (GBP/EUR) exchange rate outlook if it surprises.