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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Pound Slips on BoE Interest Rate Hike Bets

Euro Currency Forecast

Pound Sterling to Euro (GBP/EUR) Exchange Rate

The belief that the UK’s economic recovery is too fragile to withstand interest rate increases in 2015 left the Pound trading in a weaker position against several of its rivals on Monday.

The Pound Sterling to Euro (GBP/EUR) exchange rate registered a small decline to trade in the region of 1.2784.

Demand for the Pound was also undermined by the day’s only UK report – the Lloyd’s Employment Confidence Index.

The measure fell from 1 in November to -2 in December.

Earlier…

The Pound Sterling to Euro (GBP/EUR) exchange rate advanced on Friday to close out the week trending over the 1.28 level, but weakness could be on the horizon for the pairing.

Although European Central Bank (ECB) interest rate hike speculation will be keeping the Euro under pressure, negative UK reports could push Bank of England (BoE) interest rate hike bets even further back, undermining demand for Sterling.

Foreign exchange strategist Vassili Serebriakov noted; ‘The expectations of QE have been building and were reinforced by the comments this week and the CPI data. We might not get a much weaker Euro immediately after the announcement but, overall, if QE continues, the Euro should be a key funding currency and will weaken over time.’

GBP/EUR Exchange Rate Climbs on Manufacturing Production Surge

A number of factors contributed to the Pound Sterling to Euro (GBP/EUR) exchange rate uptrend on Friday.

While the German trade surplus narrowed and the level of industrial production in the Eurozone’s largest economy eased, the UK’s trade deficit narrowed and manufacturing production increased by considerably more than expected.

Manufacturing production had been expected to increase by 0.3% on the month, but it actually surged by 0.7%. This took the annual figure from 1.7% to 2.7%. A smaller year-on-year number of 2.3% had been anticipated.

Meanwhile, the UK’s deficit of goods and services contracted to a six-month low of 8.8 billion Pounds.

Strategist Jane Foley said of the results and the Pound’s subsequent gains; ‘That trade data, the headline, has given support to Sterling. Cable is still very vulnerable as it’s vulnerable to movements in Euro-Dollar.’

The Pound Sterling to Euro (GBP/EUR) exchange rate achieved a high of 1.2846 on Friday.

Pound Sterling (GBP) Exchange Rate Forecast to Slide if UK Inflation Decreases

While a number of reports have the potential to inspire Pound Sterling to Euro (GBP/EUR) exchange rate movement in the week ahead, the one investors will be focusing on particularly is the UK’s Consumer Price Index.

Given that the Bank of England (BoE) has estimated that inflation could fall below 1.0% in the next six months, and December’s CPI pushed back interest rate hike expectations, an increase in consumer price gains would be positive for the Pound.

However, economists are projecting an annual reading of just 0.8%. If that proves to be the case the Pound could decline against its main currency counterparts.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast

The Pound Sterling to Euro (GBP/EUR) exchange rate could also experience movement as a result of the British Retail Consortium’s Like-for-Like sales and RICS House Price data.

The Eurozone’s industrial production and Germany’s growth figures for 2014 may also have an influence on the direction taken by the Pound to Euro currency pair.

While disappointing UK data could push the Pound lower against the Euro, bets that the ECB will introduce quantitative easing measures on the 22nd of January will prevent the common currency from making any serious gains.

According to The Telegraph; ‘The European Central Bank has drawn up a plan to buy up to 500 billion Euros of high-quality government debt as it mulls over how best to inject a fresh round of monetary stimulus into the ailing currency bloc. Various quantitative easing proposals have been put to the governing board of the ECB, including the option to purchase investment-grade government assets […] There was no timescale indicated on the purchases, and the ECB’s board has yet to take a decision on the final design of the program.’

The Pound Sterling to Euro (GBP/EUR) Exchange Rate closed out Friday in the region of 1.2802

The Euro to Pound Sterling (EUR/GBP) Exchange Rate closed out Friday trading in the region of 0.7810

On Sunday the Pound Sterling to Euro (GBP/EUR) exchange rate was trading in the region of 1.2794