Pound to Euro (GBP/EUR) Exchange Rate Movement Limited with BoE in Focus
Sterling (GBP) has seen mixed movement in recent sessions due to market uncertainty over the strength of the UK economy and political stability. As a result, the Pound to Euro (GBP/EUR) exchange rate could end the week close to its opening levels.
Comments from Bank of England (BoE) Governor Mark Carney earlier in the week briefly made the Pound more appealing, as he had indicated that the bank would become more focused on keeping UK inflation lower.
This hinted to investors that the bank may be preparing to tighten UK monetary policy more than previously expected in 2018, leading to higher BoE interest rate hike bets and a stronger Pound.
On Thursday the Pound to Euro (GBP/EUR) exchange rate hit a high of 1.1466, its best level all week. However, due to underwhelming UK data investors are uncertain that Britain’s economy will handle higher rate hikes.
As a result of this and concerns about divisions in the UK Conservative Party, GBP/EUR trended closer to the week’s opening levels of 1.1391 on Friday morning.
Pound (GBP) Exchange Rates Slip as UK Manufacturing Falls Short
The Pound was initially performing strongly on Thursday morning, but following the publication of Markit’s UK manufacturing PMI from January the British currency fell from its highs.
Markit’s manufacturing print was forecast to have improved from 56.3 to 56.5 in January, but instead declined from a revised 56.2 to just 55.3 – the print’s lowest level in seven months.
While analysts pointed out that manufacturing exports had improved according to the PMI, it still weighed on the idea that Britain’s economy would be strong enough to support tighter monetary policy from the Bank of England (BoE) this year.
Friday morning’s UK construction PMI from January disappointed too, falling from 52.2 to 50.2 – worryingly close to stagnation. The data caused concerns that Britain’s services PMI may also disappoint when it comes in next week.
Euro (EUR) Exchange Rates Supported by Solid Eurozone Data
The latest Eurozone data hasn’t been particularly surprising nor has it had any notable impact on the Euro (EUR) outlook, but it has still indicated that the Eurozone’s economy is beginning 2018 on a strong note following a strong 2017 for the bloc.
Thursday saw the publication of the Eurozone’s final January manufacturing PMIs from Markit. Germany’s PMI fell short of 61.2 projections but still printed at an impressive 61.1.
Meanwhile, Italian and French manufacturing stats beat expectations and the overall Eurozone manufacturing result came in at 59.6 as projected.
The data indicated to investors that the Eurozone manufacturing boom would continue in 2018 and could potentially last through 2019. It followed solid Eurozone growth data from 2017 earlier in the week.
Inflation has been mixed however, preventing the Euro from climbing further. Italian inflation is projected to have risen by only 0.2% month-on-month in January, lower than the analyst prediction of 0.3%.
Pound to Euro (GBP/EUR) Forecast: Bank of England (BoE) Decision in Focus Next Week
Next week is likely to be a pivotal one for Pound traders, as the Bank of England (BoE) will be holding its first policy decision of 2018.
Following BoE Governor Mark Carney’s speech on the 30th of January, investors have been even more highly anticipating the bank’s February decision, amid hopes that it will take a more hawkish tone on UK monetary policy.
Carney indicated that the bank’s focus would return to tackling inflation, which has been high in recent months.
The bank will hold its decision on Thursday and if the bank does indeed hint that it intends to tackle inflation in the coming months the Pound is likely to surge. Bets of a UK interest rate hike taking place as soon as May would rise too.
However, if UK data including a January services report disappoints next week it could weigh on hopes that Britain’s economy will be able to sustain higher interest rates. This could cause GBP/EUR to fall.
GBP/EUR is likely to be largely driven by Sterling movement next week. While Eurozone services and retail stats could influence Euro movement slightly, the shared currency is likely to remain steady as these are unlikely to change the Euro outlook.