- 2017 Pound Sterling Euro Exchange Rate Reaches 1.15 – BoE news gives Pound a boost
- Hawk Kristin Forbes Breaks Expected MPC Line – One vote for UK interest rate hike
- Eurozone Trade Deficit Brushed Over – First Eurozone deficit since 2014
- Forecast: UK Inflation Due Next Tuesday – Increased focus on UK inflation after BoE news
2017 Pound Sterling Euro Exchange Rate Cools on Friday
After a week of highly volatile trade, the 2017 Pound Sterling Euro exchange rate cooled towards the end of the week and looked to spend the weekend comfortably near the level of 1.15.
While GBP EUR remains well below the highs seen earlier in March and February, the pair put in a solid recovery of around a cent this week, thanks largely to Bank of England (BoE) hopes.
Next week, GBP investors excited by this BoE news will be focusing on Britain’s upcoming February inflation and retail sales stats, which will show if inflation is rising at a pace that consumers can keep up with. The Pound could shed some of its recent gains if the retail sector looks to continue slowing.
Markit will also publish its preliminary March PMIs for the Eurozone towards the end of next week. Brexit and French election jitters will also keep GBP EUR traders anxious as April approaches in the coming weeks.
[Previously updated 12:57 GMT 17/03/2017]
The 2017 Pound Sterling Euro exchange rate remained relatively volatile on Friday, as the pair recovered from a Thursday night dip to trend close to the level of 1.15 again.
Friday’s Eurozone ecostats had little effect on GBP EUR movement. Eurozone construction output unexpectedly contracted at -6.2% in January, while the bloc’s January trade balance unexpectedly came in with a deficit.
The trade balance slipped from €28.1b to €-0.6b due to an increase in energy imports through the cold winter. This was the Eurozone’s first deficit since January 2014.
GBP EUR traders remained generally optimistic towards the end of the week following this week’s Bank of England (BoE) news and the pair was on track to sustain solid gains throughout the week.
[Published 06:00 GMT 17/03/2017]
The 2017 Pound Sterling Euro exchange rate jumped on Thursday afternoon as investors reacted to the day’s Bank of England (BoE) news. The Euro was unable to hold its ground despite relief over this week’s Netherlands elections result.
GBP EUR began this week trending at the level of 1.13 but looks to end the week’s trading session much closer to the level of 1.15 despite wide volatility and fluctuations throughout the week.
Pound (GBP) Surges on Hawkish Moves from Bank of England’s Kristin Forbes
The Bank of England (BoE) met for its March policy decision on Thursday and as was widely expected by investors the bank left monetary policy frozen. The interest rate remained at a record low of 0.25%.
However, while investors expected the decision to leave rates frozen to be unanimous, one member of the Monetary Policy Committee (MPC) broke the policymaker line and voted for an interest rate hike.
Kristin Forbes, a known hawk, believes the time is right to hike UK interest rates due to quickly rising inflation in the nation. She believed inflation would remain above the bank’s target of 2.0% for at least three years and that key factors like economic activity and unemployment would remain optimistic.
The last time a BoE policymaker voted to hike UK interest rates was over a year ago when hawk Ian McCafferty did in January 2016.
Despite knowing that Forbes will be stepping down from the MPC in June 2017, her actions this week bolstered bets that the central bank could hike UK interest rates in the coming months.
However, despite Forbes’ hawkishness and the optimism of Pound investors this week, many analysts believe UK monetary policy will remain frozen for some time, with most predicting at least a year until policy begins to tighten again.
Euro (EUR) Sees Relief from Dutch Election Results
While the Pound was the big winner during Thursday trade, the Euro was able to limit the Pound’s gains due to relief in markets following the results of The Netherlands’ 2017 election.
Investors had been concerned that anti-EU candidate Geert Wilders would win enough seats in the election to somehow come into power. However, his PVV party came in a distant second with 20 seats.
The current ruling VVD party, run by Dutch Prime Minister Mark Rutte, took a clear win with 33 seats. It is predicted Rutte will look to create a coalition government with besides other than Wilders’ party in order to make the majority needed for a government.
Rutte celebrated his party’s victory by saying The Netherlands had said no to the rise of far-right populism. Investors were initially worried the far-right would see a surprise win after the populist Brexit and Trump votes last year.
Analysts have argued that the possibility of Wilders coming into power was overblown by some however, due to a lack of other parties willing to make a coalition with him.
2017 Pound Sterling Euro Forecast: UK Inflation Could Drive Bank of England Bets
After the 8/1 split in this week’s Bank of England (BoE) policy meeting, investors will be even more highly anticipating the next UK inflation report, which is due next Tuesday.
Markets will be hoping for Britain’s February Consumer Price Index (CPI) stats to beat expectations in order to pressure the BoE to hike rates sooner rather than later.
According to Adam Chester, head of economics from Lloyds Bank Commercial Banking, most investors expect monetary policy to be tightened before the end of next year;
‘In the money markets, expectations are now fully priced to a rise in UK interest rates by the end of 2018, compared with early 2019 before today’s announcement.’
If UK inflation beats expectations next week, bets could get even closer despite analyst consensus that another rate hike is still unlikely for another year.
Forbes will only be on the Monetary Policy Committee (MPC) until June 2017, meaning the bank could quickly return to unanimous policy freezes.
However, stronger inflation and BoE rate hike bets will certainly leave investors more eager to buy into the Pound next week.
GBP EUR is likely to sustain gains this week too, even if Friday’s Eurozone data impresses.
The Eurozone’s January trade surplus results will be publishes on Friday but they are not likely to be influential enough to drag the 2017 Pound Sterling Euro exchange rate back towards the week’s lows.