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Pound Euro Exchange Rate Sees Modest Late-Week Recovery Despite Bank of England (BoE) Uncertainty

  • Pound Euro Exchange Rate Touches 1.14 – But trends near 1.13 for most of Friday
  • Bank of England’s Andy Haldane Surprises – Hawkish tone increases Pound demand
  • Eurozone PMIs Mixed – Below expectations but rounds off strong Q2
  • GBP Forecast: Conservative Deal with DUP Still Uncertain – Political uncertainty lingers

Pound Euro Exchange Rate Drops This Week

After hovering above the key 1.14 level earlier in the day, the Pound Euro exchange rate slipped towards the end of the week’s European session.

As UK Prime Minister Theresa May’s proposal for EU citizen rights failed to impress EU officials, the Pound’s strength was limited.

Demand for the Euro was also boosted on Friday by Markit’s preliminary June PMIs. While services came in well below expectations throughout the bloc and dragged down composite prints, the report indicated that the Eurozone’s private sector had seen its best quarter since 2011.

Markit also forecast that the Eurozone may be on track to see Q2 growth of 0.7% after a solid 0.6% growth in Q1. This has left Euro investors more optimistic.

[Previously updated 12:48 BST 23/06/2017]

After trending limply for most of Thursday, the Pound Euro exchange rate climbed back towards the level of 1.14 towards the end of the week.

Demand for the Pound improved overnight as UK Prime Minister Theresa May indicated she would secure the citizenship rights of EU nationals living in Britain.

EU citizens in Britain will gradually be able to work up to having all the benefits of a UK citizen so long as they are legally living in Britain before the Brexit process is concluded in 2019.

This boosted Pound demand, as it would mean businesses wouldn’t suddenly lose EU employees because of Brexit.

[Previously updated 16:59 BST 22/06/2017]

Pound Euro Fails to Benefit from Hawkish Haldane

The Pound Euro exchange rate trended largely flatly below the level of 1.14 throughout Thursday’s European session. The pair had ultimately failed to benefit from Wednesday’s Bank of England (BoE) news.

Euro sentiment was given a boost towards the end of the day as the Eurozone’s preliminary June consumer confidence survey was published.

Analysts forecast that confidence would improve slightly from -3.3 to -3, but the result came in at an impressive -1.3.

While the negative figure may not sound impressive, this was the best result in the print since 2001.

[Previously updated 12:45 BST 22/06/2017]

Wednesday’s hawkish comments from Bank of England (BoE) chief economist Andy Haldane appear to have done little to improve the long-term Pound outlook, as the Pound Euro exchange rate continued to trend in the low region of 1.13 throughout Thursday morning.

The day’s domestic data has done little to influence GBP EUR movement so far as the pair has been largely flat.

CBI’s UK industrial trends orders report from June came in well above expectations, jumping from 9 to 16 despite being projected to slip to 7.

The European Central Bank (ECB) published its latest economic bulletin in the morning which contained nothing in the way of new or surprising information. Euro investors largely brushed over it as they anticipated the afternoon’s Eurozone consumer confidence data.

[Published 06:00 BST 22/06/2017]

The Pound Euro exchange rate jumped from its weekly lows on Wednesday as Bank of England (BoE) policymaker Andy Haldane took a surprisingly hawkish tone on UK monetary policy. However, lingering uncertainty limited the pair’s recovery.

GBP EUR began the week trending at around 1.1420. The pair dropped to a low of 1.1308 on Wednesday morning before Haldane’s comments sent it closer to the key 1.14 level again.

Pound (GBP) Boosted by Haldane’s Hawkish Tone

Just one day after Bank of England (BoE) Governor Mark Carney asserted that it was too soon to hike UK interest rates from their loosest levels, BoE chief economist Andy Haldane argued that he could see the bank hiking rates later in 2017 to combat surging inflation.

Carney had argued that the bank’s ultra-loose monetary policy would be necessary in the long-term to combat potential Brexit damage, as well as a potential economic slowdown in Britain.

Then on Wednesday, Haldane pointed out the risks of leaving monetary policy alone were increasing the more inflation rose. He indicated that some of 2016’s post-Brexit vote stimulus measures could be reined in, including a rate hike. An excerpt from his speech reads;

‘As the balance point between these risks has shifted over the past 9 months, that has left me judging that a partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon, provided the data come in broadly as expected in the period ahead.

Certainly, I think such a tightening is likely to be needed well ahead of current market expectations.

…Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year.’

Some analysts speculate that Haldane is attempting to push the Pound up in attempt to keep inflation down, and others expect Haldane could become more dovish again if more concerning data is published over the coming months.

On the other hand, some analysts even began to forecast that a rate hike could be possible before the end of the year. According to Lena Komileva from G+ Economics;

‘The growing split on the MPC signals a much higher risk of tightening this year than previously expected in the markets.

With two new members joining the MPC in the second half of the year, an active policy debate on the merits of tightening, against the optics of a strong inflation overshoot, overheating consumer credit growth, and a tight labour market, may well tilt the vote in favour of a rate hike by the year-end.’

Ultimately while the Pound advanced on the news investors were unconvinced that Haldane’s hawkishness was enough to influence other policymakers to hike UK rates any time soon.

Euro (EUR) Limp on Lack of Eurozone News

While the Euro outlook remains solid on expectations that the Eurozone’s economic and political stability is improving, investors have not had a fresh reason to buy up the shared currency this week. This week’s Eurozone data has been relatively low-influence so far.

The Euro was supported slightly earlier in the week by a strong performance from French President Emmanuel Macron’s ‘en Marche!’ party in French legislative elections.

News that German Chancellor Angela Merkel might back Macron’s proposals for a Eurozone finance minister and Eurozone budget have also bolstered Euro trade this week, as diplomatic ties between Germany and France appear to be strengthening under the new French President.

Pound Euro Forecast: Eurozone Consumer Confidence Due Today

After trending relatively limply for most of the week due to a lack of fresh ecostats, the Euro could be influenced by key domestic data on Thursday and Friday.

The Eurozone’s flash consumer confidence survey for June will be published on Thursday afternoon and is expected to lighten slightly from -3.3 to -3. If confidence improves further than expected, the Pound Euro exchange rate could drop due to an increase in Euro demand.

Friday’s session will see a slew of influential Eurozone ecostats published, including final Q1 Gross Domestic Product (GDP) data from The Netherlands and France, as well as Markit’s preliminary June PMIs for the bloc.

Analysts expect the Eurozone’s PMIs will have slowed following impressive results in recent months, but if they come in even worse than expected the Euro will weaken.

The Pound will react to any UK political developments, particularly a potential deal (or lack of a deal) from the Conservatives and Northern Ireland’s Democratic Unionist Party (DUP).

Otherwise though, Eurozone data is more likely to influence the Pound Euro exchange rate towards the end of the week.