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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Common Currency Slides as German Producer Prices Decline

Despite the appeal of the Pound (GBP) remaining relatively muted at the end of the week the Euro (EUR) has slumped due to weak German Producer Price data.

Pound Sterling (GBP) Exchange Rate Strengthened Despite BoE Rate Hold

While markets were not surprised by the Bank of England’s (BoE) unanimous decision to leave interest rates unchanged at 0.50% yesterday the Pound (GBP) nevertheless saw some strong gains in the wake of the announcement. Investors were encouraged by policymakers’ somewhat less dovish commentary on the UK economy, as they highlighted that stronger fundamentals remained in spite of increasing ‘Brexit’ uncertainty.

Demand for the Euro (EUR) had seen a sharp rise in the wake of the Federal Open Market Committee’s (FOMC) downwards revision of its monetary policy forecast, with the Fed now predicting just two interest rate hikes in the coming year rather than four. As this saw the US Dollar (USD) fall significantly out of favour with markets the single currency benefitted strongly, although the BoE meeting soon prompted the Pound Sterling to Euro (GBP/EUR) exchange rate to return to an uptrend.

Disappointing German Producer Prices Dent Euro (EUR) Exchange Rate Today

Although there is no fresh UK data due for release on Friday the GBP/EUR currency pair has continued to advance. Confidence in the Euro has been discouraged by the latest German Producer Prices report, as the contraction in prices unexpectedly widened both on the month and the year. This weaker showing would certainly suggest that the inflationary outlook of the Eurozone’s powerhouse economy remains discouraging, as prices fell -3.0% on the year in February and it seems unlikely that a substantial pickup will come in the near term.

Sterling, meanwhile, has softened somewhat ahead of the weekend as doubts continue to grow over Chancellor George Osborne’s latest budget. With the odds of Osborne achieving his much-vaunted surplus seeming to shrink, as opposition to announced cuts to welfare payments grows, there is little encouragement for investors today.

GBP/EUR Exchange Rate Forecast: Euro to Slump on Stronger US Confidence Index

As European Union leaders meet with the Turkish President to discuss plans to resolve the refuge crisis any difficulties in negotiation are likely to have a detrimental impact on market confidence. With the EU increasingly under strain investors will be hoping to see a more positive outcome to the summit, with a successful resolution standing to restore some measure of confidence in the future of the union.

The Euro may cede further ground if this afternoon’s University of Michigan Confidence Index shows improvement, with any recovery in the US Dollar set to dampen the appeal of the single currency. Should the US economy show fresh signs of faltering, however, and lend further credence to the FOMC’s more dovish outlook then the GBP/EUR exchange rate is expected to return to a downtrend.

Current GBP, EUR Exchange Rates

At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was making gains in the region of 1.2798, while the Euro to Pound Sterling (EUR/GBP) pairing was trending lower around 0.7812.