UPDATE
The Pound Sterling to Euro (GBP/EUR) exchange rate declined by around -0.4% on Tuesday morning.
The single currency clawed back losses against the Pound overnight after a drop in European stock values prompted safe-haven demand. On Tuesday morning, the Pound extended losses versus the Euro after domestic data failed to impress. December’s UK BRC Like-for-Like Sales was forecast to advance by 0.5% but the actual result only saw 0.1% growth. Later this morning, British Industrial Production and Manufacturing Production is likely to provoke volatility. On Tuesday afternoon Bank of England (BoE) Governor Marl Carney will give a speech in Paris which is likely to stimulate Sterling movement.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3348.
Yesterday…
GBP/EUR Conversion Rate Trending Higher after Danske Bank Predicts First BoE Rate Hike in Q2 16
The Pound Sterling to Euro (GBP/EUR) exchange rate rallied by around 0.5% on Monday afternoon.
With a complete absence of domestic data to drive volatility today, the Pound advanced versus many of its currency rivals thanks to traders taking advantage of a comparatively low trade weight. Although the forthcoming EU referendum is having a significantly detrimental impact on investor confidence, analysts at Danske Bank still predict that the Bank of England (BoE) will look to hike the overnight cash rate in the second-quarter of 2016. Danske Bank analysts added that the risk picture is balanced.
‘The lower oil price, in particular, has lowered the inflation outlook for the UK significantly. The risk picture is in our view balanced. On one hand, the UK real economy is doing well with growth slightly above trend, increasing employment and the unemployment rate more or less back to ‘normal’. On the other, temporary factors such as the strong GBP and lately the lower oil price, in particular, are keeping inflation low and we believe they will continue to put downward pressure on CPI inflation. We expect CPI inflation to stay below 0.5% in H1 16, before moving up in H2 16. In our main scenario, under the assumption of a small rebound in oil and food prices, CPI inflation will reach 2% towards year-end 2017.’
Analysts added:
‘As movements in oil and food prices have been very difficult to predict – and may continue to be so – we have also looked at the inflation outlook with unchanged commodity prices. Even in this scenario, headline inflation will pick up in H2 16 and eventually reach 1.7% towards the end of 2017. Even though we still expect CPI inflation to be low in May, we think that the underlying pressure on the Bank of England is still greater than currently recognised. Monetary policy works with a lag and unemployment is already more or less back to ‘normal’.’
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3357.
EUR/GBP Conversion Rate Predicted to Decline as China Slowdown Weighs
Many economists predict that the Euro will come under significant pressure in the medium to long term against the backdrop of a slowdown in China. This is because German exports are likely to be hit hardest amid damp demand from the world’s second-largest economy. On Monday the single currency softened versus its major peers thanks to a worse-than-anticipated result from Eurozone Investor Confidence which hit 9.6 in January, below the median market forecast drop from 15.7 to 11.4.
The falling price of oil is also expected to have a detrimental impact on Euro demand as the European Central Bank’s (ECB) programme of quantitative easing has a muted impact. ‘Chinese oil data are finally starting to reflect weak economic activity. Implied oil demand in China contracted 4.9 percent (537.3 thousand barrels per day) month-on-month and 2.0 percent (216.7 thousand barrels per day) year-on-year in November, the first decline since July 2014,’ Barclays bank said in a note late on Friday. ‘We expect further compression in growth rates this year, with an average of 300 thousand barrels per day (2.7 percent),’ it added.
The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.3252 during Monday’s European session.
Pound Sterling to Euro (GBP/EUR) Forecast: Carney Speech to Provoke Volatility
There will be a number of ecostats on Tuesday with the potential to provoke changes for the British Pound to Euro (GBP/EUR) exchange rate. Perhaps the most significant of which will be a speech from Bank of England (BoE) Governor Mark Carney in Paris. Additional volatility will be likely in response to British economic data which includes December’s BRC Like-For-Like Sales, November’s Industrial and Manufacturing Production and December’s NIESR Gross Domestic Product Estimate. In terms of European ecostats, speeches from ECB officials Peter Praet and Sabine Lautenschlaeger may provoke volatility.
The Pound Sterling to Euro (GBP/EUR) exchange rate climbed to a high of 1.3436 during Monday’s European session.
