The appeal of the Euro (EUR) remains limited today as commentary from European Central Bank (ECB) policymakers encourages speculation that the central bank will ease further at its next policy meeting.
Euro (EUR) Exchange Rate Trends Lower as Odds of ECB Monetary Loosening Increase
Following Monday’s unexpectedly poor Eurozone Consumer Price Index, which showed that inflation within the currency union had fallen from 0.3% to -0.2% on the year in February, the Euro (EUR) has been on weaker form. Despite January’s Eurozone Unemployment Rate showing a surprise drop to 10.3% this failed to shore up the common currency, particularly as safe-haven demand was generally eroded. Investors are increasingly confident that the European Central Bank (ECB) will opt to loosen monetary policy at its next policy meeting, causing the single currency to decline as traders price in fresh easing measures.
ECB President Mario Draghi helped to encourage the Euro selloff further as the policymaker was quoted as once again reiterating the central bank’s willingness to act. Furthermore, ECB board member Benoît Cœuré has today commented that more needs to be done to stimulate the domestic economy and push up persistently low inflation, seeming to cement the odds of imminent easing.
UK Manufacturing, Construction PMIs Weaken to Dent Pound Sterling (GBP) Rally
Despite the UK Manufacturing PMI proving decidedly worse than expected the Pound (GBP) was nevertheless making gains against rivals on Tuesday. Slumping from 52.9 to 50.8 in February the domestic manufacturing sector clearly suffered under the pressure of increasing downside risks, with the impact of recent Sterling weakness yet to filter through into the wider economy. Given the detrimental effect of uncertainty in the run-up to June’s EU membership referendum this weaker showing does not bode particularly well for the outlook of the UK economy.
As this morning’s UK Construction PMI has continued the trend of domestic weakness, slipping from 55 to 54.2, the Pound has struggled to hold onto its recent strength. However, as construction’s contribution to UK GDP is fairly limited, the impact of this discouraging result has been somewhat muted.
EUR/GBP Exchange Rate Forecast: Weaker Eurozone Retail Sales to Dent Common Currency
Tomorrow’s UK Services PMI could produce renewed volatility for the EUR/GBP exchange rate, due to the significant role of the service sector in driving growth in the domestic economy. Should the figure weaken further than expected, the Pound is likely to return to a bearish trend.
With Thursday’s Eurozone Retail Sales expected to show a slight weakening in consumer demand the appeal of the Euro is unlikely to substantially recover its diminishing strength. However, if the latest US Non-Farm Payrolls report demonstrates that conditions in the US are less conducive to monetary tightening the single currency is expected to rally on the back of fresh US Dollar (USD) softness.
Current EUR, GBP Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending narrowly at 0.7790, while the Pound Sterling to Euro (GBP/EUR) pairing was trending in the region of 1.2836.
