Optimistic Forecasts from BoE Policymakers could Trigger GBP/EUR Rate Rise
The Pound to Euro exchange rate has fallen on 2nd February, but Sterling has a chance to rise sharply in the pairing over the coming week.
The Bank of England (BoE) will be holding its first monetary policy meeting of 2018 on 8th February, which could see policymakers upgrade their forecasts for 2018-2019.
BoE Governor Mark Carney has recently made some optimistic predictions for the UK economy in the future, stating;
‘There should be a pick-up in [UK business] investment in 2019. A disorderly Brexit, not a likely scenario at all, [is] less likely than at the time we did the assessment in the fall’.
In referring to Brexit, Mr Carney has identified what may be the pressing issue of 2018 for BoE policymakers considering higher interest rates.
The BoE has previously focused on UK inflation for previous interest rate decisions, but the assumption is that Brexit negotiations will play a much bigger role this year.
If the consensus from the BoE meeting is that the UK economy could grow and Brexit talks may conclude favourably, the Pound could firm against the Euro.
GBP/EUR Exchange Rate Volatility possible on Services Sector Data
Ahead of the upcoming BoE policy meeting will be the UK services PMI for January, out on 5th January.
This is tipped to show a minor slowdown in the index, from 54.2 points to 54.
Such a result could lower confidence among Pound traders, as the services sector is the largest single contributor to UK economic growth.
It covers key areas such as tourism, retail sales and financial services, which are seen as particularly at risk of Brexit-linked damage.
The services reading fluctuated over the course of 2017, but if traders assume that a decline next week is the start of prolonged losses, the GBP/EUR rate could worsen.
Further Euro to Pound Gains possible on Eurozone PMI Growth
The next Eurozone data that could influence the Euro will be services and composite PMI readings, which are out on 5th February.
Unlike the UK services estimate, forecasts in this case are for growth for both Eurozone PMI figures.
The composite reading takes Eurozone manufacturing, construction and services into account, so forecast-matching growth could greatly increase Euro trader confidence.
Retail Sales Slowdown may Limit EUR/GBP Exchange Rate Rise
While the Euro could gain support and rise against the Pound on 5th February’s PMI readings, it also remains vulnerable to declining on the day’s sales stats.
Eurozone retail sales figures for December are out on 8th February and forecasts are for a month-on-month and year-on-year slowdown.
Fewer retail sales, especially in the usually spend-heavy Christmas month, could hold the EUR/GBP exchange rate in check.