- British Pound Euro Exchange Rate Dips to 1.15 – Reserves Wednesday’s gains
- Bank of England Leaves Policy Frozen – But slightly cuts inflation outlook
- UK Services PMI Disappoints – Drags UK composite PMI down
- EUR Forecast: Quiet Eco-Calendar Ahead – German data could influence EUR trade
British Pound Euro Exchange Rate Extends Losses on Friday Afternoon
The British Pound Euro exchange rate’s losses were extended on Friday afternoon as Sterling traders expressed disappointment with the week’s UK ecostats and Bank of England (BoE) news.
As a result, GBP EUR dipped into the region of 1.15 once again and hit a new weekly low before the week’s European session came to an end.
While the day’s Eurozone retail sales results disappointed investors, the Euro remained relatively strong throughout the day due to weakness in its rivals, as well as the morning’s services and composite PMIs from Markit.
Germany’s services PMI beat preliminary projections in January to print 53.4. This helped pull up the Eurozone’s overall services and composite PMIs to 53.7 and 54.4 respectively.
[Previously updated 13:24 GMT 03/02/2017]
Sterling made a brief recovery attempt when European markets opened on Friday morning, but it didn’t last as the Pound slumped once again following the publication of Markit’s January services PMI for the UK.
Services were predicted to slip slightly from 56.2 to 55.8, but instead saw a more significant slow to 54.5. This disappointing result increased concerns that the Britain’s biggest economic sector – services – would feel a significant hit from the low value of the Pound in the coming months as consumer prices surge.
As a result of this week’s worse-than-expected UK construction and services PMIs, the nation’s composite PMI also dropped further than predicted – from 56.7 to 55.5.
Demand for the Euro remained sturdy throughout the day due to another set of optimistic Eurozone ecostats.
[Published 07:00 GMT 03/02/2017]
The British Pound Euro exchange rate lost around -1% during Thursday’s European session as investors reacted to the Bank of England’s (BoE) first policy meeting of 2017.
GBP EUR has seen wide movements over the last week after opening at 1.17. However, unless Friday’s UK data impresses investors it’s likely the pair will end the week much lower, in the region of 1.16.
Pound (GBP) Sheds This Week’s Gains after ‘Super Thursday’ BoE News
Despite featuring a considerable upgrade to its 2017 UK growth forecast, the Bank of England’s (BoE) ‘Super Thursday’ was a disappointing one overall for Pound investors.
Sterling was already being sold off on Thursday morning due to this week’s MP vote on Article 50. The vote ended overwhelmingly in favour of taking the bill to its final stage, with a vote of 498 to 114.
Nothing surprised investors about the Bank of England’s decision to leave UK monetary policy frozen, the interest rate remaining at its record-low of 0.25%.
However, as the bank largely left its 2017 inflation forecast alone, GBP traders were disappointed as they perceived that the bank’s chances of hiking up UK interest rates in the short to mid-term future had not notably improved at all.
Kathleen Brooks from City Index also had this to say about the inflation report’s effect on the Pound;
‘The Bank lowered the equilibrium rate of unemployment to 4-4.75%, from 5%. Thus, the UK unemployment rate, currently at 4.8%, could fall substantially before the BOE would consider this an inflation risk. These … developments are worth watching closely.’
Following the BoE’s publications, Governor Mark Carney held a press conference at which he continued to defend the bank’s post-Referendum easing policy. He maintained that eased monetary policy was the reason Britain’s economy has outperformed expectations since the Brexit vote.
Also worthy of note is the Brexit ‘white paper’, which was finally published on Thursday and set out the UK government’s Brexit plan.
Euro (EUR) Advances on Pound Selloff, Weaker US Dollar (USD)
The shared currency was able to easily take advantage of Thursday’s currency movements to capitalise against the Pound, causing GBP EUR to fall back towards its weekly lows from its weekly highs.
This week’s Eurozone news has helped to support the Euro as investors continue to hope that underlying price pressures will improve the Eurozone inflation outlook for the coming year.
Tuesday’s session saw the publication of a better-than-expected Eurozone Consumer Price Index (CPI) projection and Thursday’s Producer Price Index (PPI) figures also beat expectations.
As a result, investors looked over a relatively dovish European Central Bank (ECB) economic bulletin, which repeated the bank’s previous comments that inflation was only rising due to higher prices of energy such as oil.
Other impressive Eurozone ecostats published throughout the week included Q4 Gross Domestic Product (GDP) projections and December unemployment figures, which also beat expectations.
A weaker US Dollar (USD) towards the end of the week as the Federal Reserve’s unchanged outlook disappointed investors also helped to boost demand for the Euro.
British Pound Euro Exchange Rate Forecast: Key Service Sector Results Ahead
Friday will see the publication of the final slew of January’s Markit PMIs for Britain and the Eurozone.
Services and composite PMI figures will be published for Italy, Germany, France, the Eurozone as a whole and Britain on Friday morning. If the Eurozone’s results miss preliminary projections, these are likely to influence Euro trade for the day.
Britain’s services PMI is expected to slip slightly from 56.2 to 55.8. If it falls further than this, concerns will grow that UK growth could fall due to lower consumer spending, despite the Bank of England’s (BoE) higher growth outlook this week.
Later in Friday’s session, the Eurozone’s December retail sales results will be published.
The Euro could also be influenced by the strength of the US Dollar (USD) on Friday. If Friday’s US Non-Farm Payroll figures impress, the Euro could weaken and allow GBP EUR to recover.
Overall, unless Friday’s data causes another shift in GBP EUR movement the pair is likely to end the week below the week’s opening levels.
Next week’s economic calendar is comparatively quiet and as a result the British Pound Euro exchange rate could be far less volatile next week than it has been this week.