- Euro Pound Exchange Rate Falls to 0.86 – Bank of England hawk Forbes surprises traders
- Brexit Reality Hits Traders – Brexit bill passes through UK Parliament
- EUR Update: Euro Sees Relief after Dutch Election – Coalition may not be decided for months
- Forecast: UK Inflation Stats Next Week – Will this keep the BoE under pressure?
Euro Pound Exchange Rate Falls Despite Status Quo Win in The Netherlands
The main cause of Euro Pound exchange rate movement on Thursday was ultimately the Bank of England (BoE) news that Kristin Forbes had voted for a UK interest rate hike.
While eight BoE policymakers voted successfully to leave monetary policy frozen, BoE interest rate hike bets increased after Forbes’ hawkish vote.
Due to her move, many analysts and investors now expect the central bank will tighten monetary policy again towards the end of 2018.
Some investors hope for a rate hike in the coming months, but analysts argue this is unlikely.
Forbes is due to step down from the Monetary Policy Committee (MPC) in June, meaning her hawkishness won’t be around on the MPC for much longer.
EUR GBP is now on track to end the week below its opening levels, but could be slightly influenced by Friday’s Eurozone trade surplus stats.
[Previously updated 12:51 GMT 16/03/2017]
Despite a brief recovery from the Euro Pound exchange rate on Thursday morning, EUR GBP plunged to a new weekly low of 0.86 following the week’s Bank of England (BoE) meeting.
While the BoE left monetary policy frozen as expected, one member of the Monetary Policy Committee (MPC) unexpectedly voted to hike UK interest rates to 0.5%.
Policymaker Kristin Forbes has already stated in recent months that she believes UK interest rates should be higher to tackle inflation. Her hawkish move increased demand for the Pound.
The Euro was unable to hold back the Pound’s gains despite news that the VVD liberal party of Dutch Prime Minister Mark Rutte had comfortably beaten anti-EU Geert Wilders in the 2017 Netherlands election.
Rutte’s party won 33 seats while Wilders came in second with 20 seats. The process of making a coalition government big enough to make a Parliamentary majority could take months according to analysts.
[Previously updated 16:42 GMT 15/03/2017]
Euro Pound Exchange Rate Edges Lower During Dutch Election Day
While the Euro Pound exchange rate briefly strengthened following the publication of Britain’s latest wage growth results, the pair trended nearer the week’s worst levels towards the end of the day’s European session.
Demand for the Euro was poor throughout Wednesday trade amid a lack of fresh supportive data as well as investor uncertainty about the day’s general election in The Netherlands.
The Euro is likely to react to any results from the vote that come in overnight and on Thursday, but EUR GBP investors will also be focused on the day’s Bank of England (BoE) news.
If the BoE takes on a more hawkish than expected tone, the Euro Pound exchange rate will fall further. On the other hand, Pound investors may be disappointed if the BoE repeats its recent outlook again.
[Previously updated 13:00 GMT 15/03/2017]
While Euro investors were jittery for most of Wednesday trade as Dutch citizens voted in The Netherlands’ 2017 general election, the Euro Pound exchange rate’s losses were limited due to mixed UK news.
Investors initially rushed into the Pound on Wednesday morning as traders closed short positions and bought the Pound from its cheapest levels. A report from The Times also claimed that the Bank of England (BoE) should consider tightening UK monetary policy soon which bolstered the Pound.
However, Wednesday’s UK employment results from the three months into January were mixed causing EUR GBP to recover some of its losses.
While unemployment fell to 4.7%, wage growth also slowed further than expected increasing fears that UK households could face a spending squeeze later in the year.
[Published 06:00 GMT 15/03/2017]
The Euro Pound exchange rate climbed back towards the week’s opening levels on Tuesday as the Brexit bill passed through UK Parliament without amendments attached and the reality of Brexit began to sink in for Sterling traders.
EUR GBP has been trending in the region of 0.87 since markets opened this week but almost fell as low as 0.86 on Monday. On Tuesday the pair regained most of its Monday losses and trended nearer its best levels since January.
Euro (EUR) Strength Fades on Dutch Election Jitters
The Euro’s recent strength dimmed on Tuesday as investors became increasingly jittery about this week’s general election in The Netherlands.
Dutch citizens head to the polls on Wednesday and opinion polls in recent months have shown that anti-EU Geert Wilders is expected to find solid support and win more seats than usual.
Wilders has stated that he wishes to significantly curb immigration to The Netherlands, as well as remove the country from the Eurozone and the EU.
Dutch election jitters have been enough to dampen the Euro’s strength but the shared currency largely benefitted from weakness in the Pound on Tuesday.
Last week the shared currency surged after European Central Bank (ECB) President Mario Draghi stated deflation risks in the Eurozone had faded. However, Eurozone political concerns are highly influential on Euro trade this year amid fears that nations may follow the Brexit vote and withdraw from the currency bloc.
Pound (GBP) Plunges as Brexit Bill Passes Through Parliament
The Brexit process is one significant step closer to beginning this week, as the bill allowing the UK government to activate Article 50 has been passed through the UK Houses of Parliament smoothly.
Investors were widely hoping that amendments made to the bill by the House of Lords would be accepted by the House of Commons. However, Commons overwhelmingly voted to cut the amendments and Lords quickly conceded.
The Lords’ proposed amendments included a condition that the UK government must guarantee the rights of EU citizens and workers already living in Britain during the Brexit process.
While the UK government wishes to support the rights of EU nationals living in the UK, Prime Minister Theresa May intends to confirm the rights of UK citizens living in the EU before securing the rights of EU nationals in UK.
Markets had been hoping for the amendments to pass or for the House of Lords to attempt to attach the amendments once again and send the bill into Parliamentary ‘ping-pong’.
If the Brexit bill were passed between the Houses of Commons and Lords multiple times, it could potentially delay the Brexit process.
Ultimately however the bill passed and the reality sunk in for GBP investors that the Brexit would indeed begin by the end of March as PM Theresa May had planned.
Euro Pound Exchange Rate Forecast: Dutch Election and Employment Stats in Focus
Wednesday will be a key session for the Euro Pound exchange rate. The Euro is unlikely to see much strength due to Dutch election jitters, which could give Sterling an opportunity to drag EUR GBP down if UK data impresses.
The focus of the day for Sterling traders will be Britain’s employment results from the three months into January, particularly wage growth figures.
Analysts have been concerned that UK wage growth is slowing. If wage growth comes in lower than expected it will worsen fears that citizens will be unable to keep up with rising consumer prices, causing growth in Britain’s key retail and services sectors to slow notably.
If UK wage growth impresses however, EUR GBP will fall.
The Euro will of course react to the results of the Dutch general election. Results will be counted when polls close and could be announced on Thursday but a government could take weeks or even months to form.
Analysts suggest it is unlikely that anti-EU Geert Wilders would be able to form a coalition government even if his Party of Freedom (PVV) wins the most seats in the vote, due to other parties being unwilling to work with him.
This scenario would ultimately leave Wilders without power. However, investors are prepared for anything following last year’s unexpected Brexit and Trump votes.
If Wilders wins the most votes by a larger-than-expected margin, the Euro could plunge and investors will focus on coalition discussions. If he performs worse than expected the Euro Pound exchange rate could surge as Eurozone populism fears dim.
