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Pound Euro (GBP EUR) Forecast Gloomy as BoE Rate Hike Hopes Diminish

Pound Sterling Currency Forecast


This week has been a turbulent one for the Pound to Euro exchange rate, particularly with Sterling still reeling from last week’s spate of negative data. The Pound was, however, finally offered a brief respite in the form of today’s robust labour market data and some seemingly positive wage growth figures.

UK Wage Growth Exceeds Expectations but Forecast Remains Gloomy

The British wage growth (excluding bonuses) figures were released this week, demonstrating an increase from 1.8% to 2% and exceeding expectations of a 1.9%. However, it should be noted that with inflation sitting at 2.9%, real wages are essentially still falling, something that puts a dent in the possibility of future rate hike bets.

Also notable was the May unemployment rate, which reached lows not seen since the 1970’s by printing at 4.5%, down from the previous reading of 4.6%.

Sterling’s response to this news has been somewhat limited against the Euro, however, not only because of ongoing political uncertainty regarding Brexit, but also because investors will be carefully awaiting the highly significant UK June inflation figures in the week ahead before drawing any significant conclusions on the strength of the UK economy.

GBP Exchange Rates Fluctuate as Speech by BoE Policymaker Ben Broadbent Disappoints

BoE official Ben Broadbent disappointed many yesterday when he expressed a dovish outlook, taking the stance that the process of Brexit could hurt British trade and thus the UK economy. He stated:

‘There is reason to see the committee moving in that direction (higher interest rates) – but there are still a lot of imponderables. (…) In my opinion, it is a bit tricky at the moment to make a decision (to raise rates). I am not ready to do it yet.’

The Pound to Euro exchange rate hastily pared its gains as a result, but it did, however, steady again this afternoon as the strong labour market data distracted from BoE official comments.

Upcoming ECB Rate Hike Hopes Diminish, Euro Pressured

European Central Bank Member and Bank of Italy Governor Ignazio Visco expressed a dovish sentiment today when he stated that monetary stimulus policies ought to remain expansive – dovish words that indicate that the Eurozone’s interest rate will likely remain low in the near future.

Also of note when discussing the likelihood of future ECB rate hikes is Germany’s wholesale price index, which came in flat at 0.0% – way below the ECB’s CPI target of 2%. Indeed, there are many that contend that the ECB will be unlikely to adjust its monetary policy until that 2% inflation target is within sight.

If this is the case and more ECB members express dovish sentiment, then the Pound may continue to capitalise against the Euro, holding onto its gains and climbing away from this morning’s rather substantial dip to 1.11.

BoE Reports and Brexit Talks Likely to Impact GBP/EUR

The near-term forecast for the Pound Euro (GBP EUR) exchange rate will be in part dictated by the results of tomorrow’s BoE credit conditions and bank liabilities survey, a survey that could quite possibly present weakness or resilience in regards to the health of the financial system.

With the data calendar for this week otherwise being quite sparse, movements will likely be dictated for the remainder by political manoeuvring in regards to Brexit and the state of UK politics, particularly the latest news regarding the rights of EU citizens living in Britain and British citizens living within the EU.

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