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Dovish ECB Comments Trap Euro Pound Exchange Rate in Narrow Range

Better-than-expected Eurozone retail sales data was not enough to boost the appeal of the Euro, even though the domestic economy continues to demonstrate signs of strength.

Comments from European Central Bank (ECB) policymaker Benoît Cœuré dampened the mood towards the single currency on Wednesday.

As Cœuré noted that the central bank has not yet discussed changing monetary policy investors were inclined to sell out of the Euro, with the prospect of any tapering of the quantitative easing program remaining a distant prospect.

Confidence in the outlook of the Eurozone has also diminished as a result of the latest developments in the Greek bailout saga.

With the disbursement of the next tranche of bailout funds pushed back to mere days before Athens is due to make significant repayments to creditors the threat of a fresh crisis rose once again.

As the issue of Greece looks set to loom over the currency union for some time to come, given that creditors still lack an agreement on debt relief, the upside potential of the Euro may remain limited.

The mood towards the single currency could sour further if the ECB’s June meeting minutes indicate that policymakers are taking a more cautious view on monetary policy.

Weak Raft of UK PMIs Limit Pound Sterling Appeal

Even so, the appeal of the Pound weakened further in the wake of a disappointing UK services PMI.

This rounded out a trio of weaker PMI figures, pointing towards slowing growth within the domestic economy and weighing on the GBP outlook.

Investors were prompted to re-evaluate the likelihood of an imminent vote for higher interest rates from the Bank of England (BoE), reversing some of Sterling’s recent gains.

As James Smith, economist at ING, noted:

‘This weaker reading pours a degree of a cold water on the latest hawkish messages emanating from the Bank of England. Governor Carney suggested last week that “some removal” of stimulus might necessary, but caveated this by saying that investment needs to offset the drag from weaker consumption. Given the degree of uncertainty surrounding Brexit, and now the UK political climate, we think investment is likely to remain subdued. That also has implications for the Bank’s relatively optimistic stance on wage growth.’

Demand for the Pound could weaken further ahead of the weekend if May’s visible trade balance shows a widening of the deficit.

With confidence in the strength of the UK economy already dented any deterioration here could weigh heavily on Sterling, particularly if the latest NIESR gross domestic product estimate also proves discouraging.

Current EUR GBP Interbank Exchange Rates

At the time of writing, the Euro Pound exchange rate was on a narrow downtrend at 0.8769. Meanwhile, the Pound Euro exchange rate was making limited gains in the region of 1.1401.