The Pound Sterling to Euro (GBP/EUR) exchange rate appreciated by over 100 pips since through Monday and Tuesday before dropping slightly, with ‘Brexit’ concerns effectively muting any Sterling rallies.
Bank of England (BoE) Announcements Cause Further Investor Hesitance
Adding to recent weight on the Pound, the BoE’s financial policy committee released a comprehensive statement on Tuesday detailing the stresses that UK banks and British economy may have to withstand in the coming year, as well as illustrating that action could be taken to reduce economic damage in the event of a ‘Brexit’.
Despite climbing to 1.2755 on Tuesday, the pair began depreciating after the central bank’s announcement and has fluctuated since.
The bank had made extensive warnings of the risks a ‘Brexit’ could have not just on the economy but on the future of British banks, and as an early contingency measure announced that buy-to-let lending rules would be tightened.
The committee states that the UK’s financial outlook has deteriorated, reflecting investors’ current lack of confidence in Pound Sterling. The Pound currently trades in its most volatile state in years and is widely predicted to worsen in the run up to the EU referendum on the 23rd of June.
The measure to tighten lending rules was made with the goal of reducing risk and having more money to lend out long term in the event of a ‘Brexit’. This will likely have the downside of reducing the number of mortgage approvals in coming years by over 10%.
Anxiety Towards Fed Rate Hike Bets Causes Increased ‘Cable’ Activity
Across the pond, negative US data led to worries of further dovishness in the Federal Reserve. Monday’s highly important personal consumption expenditure print, an important indicator of US inflation, printed lower than forecast.
This came after surprisingly hawkish attitudes from Fed policymakers last week, with some predicting another interest rate hike could be put into place as soon as April.
Due to thin holiday trade, with US markets open on bank holiday Monday but UK markets closed, many investors rushed to the temporarily calmed Pound, strengthening Sterling against many of its rivals, including the Euro.
Quiet Euro movement could be due to the lack of important data or announcements, with no data between last Friday’s French GDP (which came in as forecast) and today’s upcoming German CPI data.
The European Central Bank’s stance regarding deploying additional easing measures was reasserted last week, which may also have inspired weakness in the shared currency.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to React to Eurozone Data This Week
While the Pound seems likely to remain week as EU referendum rows are sure to continue and investors adjust themselves to the reality of the BoE beginning to build up damage control for a potential ‘Brexit’, the Euro is in a much better position to make inspired movements and drive the pair.
Later today a new slew of Eurozone data is set to be released, the highlight for certain being the German Consumer Price Index prints for March. As the Eurozone’s most prominent economy, German data of this level easily has the potential to influence the Euro currency.
Both figures are currently expected to print higher than previous releases, which, if true, could bolster the common currency’s strength against Sterling.
Tomorrow morning will also see a selection of important Eurozone data releases, with German retail sales and unemployment figures being released, followed by the general Eurozone CPI release and new estimate later in the morning. Lastly, Eurozone unemployment is due on Friday morning.
Comparatively UK data won’t be quite so exciting this week, with mortgage approvals data to follow up yesterday’s Bank of England lending announcement. British consumer confidence and GDP data is also due for release tomorrow, with house prices and Markit PMI due for Friday.
While these releases are quite important, some, such as consumer confidence, are predicted to have contracted – potentially due to the generally weakened UK economy. Either way, even positive data may be unlikely to inspire rallies in the Pound in the face of continued economic worries.
