Pound to Euro (GBP/EUR) Exchange Rate Narrows Ahead of Thursday’s BoE Meeting
Poor UK ecostats and fresh Brexit concerns pushed the Pound to Euro (GBP/EUR) exchange rate lower on Monday, but the pair’s movement was limited on Tuesday as investors were awaiting key central bank news later in the week.
After opening this week at the interbank level of 1.1333, GBP/EUR fell into the region of 1.12. The pair hit a three-week-low of 1.1249 on Tuesday morning but largely trended near the level of 1.1260.
The Pound to Euro (GBP/EUR) exchange rate trended in a narrow region on Tuesday, as investors anticipated Thursday’s Bank of England (BoE) policy decision.
Following mixed UK data in recent sessions, the Pound (GBP) would likely surge if the Bank of England still hints that it will tackle UK inflation in the coming year.
BoE interest rate hike bets have been rising due to comments from bank Governor Mark Carney, but underwhelming UK ecostats have left markets uncertain that Britain’s economy will be sturdy enough to support tighter monetary policy any time soon.
Pound (GBP) Exchange Rates Limited by Poor UK Services Results and Brexit Concerns
Market excitement about this week’s upcoming Bank of England (BoE) policy decision was dampened on Monday, when Britain’s January services PMI from Markit came in short of expectations.
The key services PMI was forecast to have risen from 54.2 to 54.3 in January, but instead slowed to just 53.0 – the print’s lowest level since September 2016.
Markit’s overall composite print for January came in at 53.5, short of the expected 54.6 and well below the previous figure of 54.9.
As services make up a notable portion of Britain’s economic activity, the slower than expected services data concerned investors hoping that Britain’s economy was resilient amid the Brexit process. Bank of England (BoE) rate hike bets slipped as a result.
Speaking of the Brexit process, the Pound has also been pressured by fresh comments from UK and EU officials claiming that Britain will not be able to remain in the EU customs union post-Brexit.
Euro (EUR) Fails to Capitalise on Pound (GBP) Weakness amid Mixed Retail Data
While the Euro strengthened on Monday due to strong Eurozone PMIs from January, the latest Eurozone retail results have not been as impressive.
Monday’s December retail sales data from the Eurozone slowed in line with expectations, with monthly sales coming in at -1.1% and the yearly figure sliding to 1.9% as forecast.
However, while German factory and construction data on Tuesday was impressive, January’s Eurozone retail PMI came in worryingly close to stagnation. The print slowed from 53 to just 50.8 – where 50.0 represents the point of stagnation between contraction and growth.
Pound to Euro (GBP/EUR) Outlook Forecast to be impacted by Bank of England News
Some Eurozone data due for publication on Wednesday could influence the Pound to Euro (GBP/EUR) exchange rate’s movement slightly, but the pair’s outlook is unlikely to change significantly at least until Thursday’s highly anticipated Bank of England (BoE) policy decision.
Wednesday data includes Germany’s December industrial production results, trade data from France and Italy’s December retail sales results.
On Thursday, GBP/EUR investors will be looking for the possibility of a more hawkish tone from the Bank of England, in particular any signals that the bank is looking to take more direction on UK inflation.
If the bank continues to indicate that it will tackle UK inflation, it’s likely the Pound to Euro exchange rate will advance towards the end of the week as BoE interest rate hike bets rise.
On the other hand, if the BoE hesitates to indicate action on inflation and instead expresses fresh concern on Britain’s economic outlook, the Pound to Euro exchange rate could remain weak and the pair’s mid to long-term outlook would worsen too.
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