- Euro (EUR) Exchange Rates Climb – Weidmann dismisses need for additional ECB stimulus
- Pound Sterling (GBP) Dives – Referendum polls indicate ‘Leave’ victory likely
- EUR Forecast to Strengthen – Fed interest rate uncertainty to push US Dollar lower
- Sterling Predicted to Extend Losses – Weak global stocks dampen risk-appetite
Euro Pound Exchange Rate Falters Today
After advancing earlier in the week on the back of polls putting the ‘Leave’ camp ahead in the EU referendum campaign, the Euro Pound exchange rate dipped below 0.79 on Wednesday as the UK’s latest employment figures proved stronger-than-anticipated.
The jobless rate had been expected to hold at 5.1% but actually dipped to 5.0% while average earnings printed more strongly than forecast, both including and excluding bonuses.
An economist with Pantheon Macroeconomics said this of the result: ‘The labour market now clearly is tight enough to facilitate a recovery in wage inflation. Year-over-year growth in private-sector wages picked up 2.7% in April from 2.3% in March. Given low inflation and virtually stagnant productivity, workers are extracting wage increases at the top end of what employers can afford. The introduction of the National Living Wage in April also likely contributed to the pick-up. We continue to expect wage growth to increase and to average nearly 3% in the second half of this year, as inflation rises and the labour market continues to tighten. Unless productivity growth suddenly accelerates, this should provide the basis for an interest rate increase just before the end of this year.’
As the week continues, Euro Pound exchange rate movement is likely to occur in response to the Federal Open Market Committee’s (FOMC) policy statement, the Bank of England’s (BoE) interest rate decision, UK retail sales numbers and the Eurozone’s final Consumer Price Index for May.
(Previously updated 08:30 15/06/2016)
Will the Euro Advance on UK Job Data?
The Euro shed some of its recent gains against the Pound as markets reopened for trading on Wednesday. However, the EUR/GBP exchange rate is likely to advance in the hours ahead if the UK’s latest jobs report shows the decline in average earnings forecast by analysts.
The Eurozone’s trade balance figures could also impact EUR/GBP in the hours ahead.
The Euro is currently trading against the Pound in the region of 0.7914
(Previously updated 16:30 14/06/2016)
UK Inflation Unchanged – EUR/GBP at 0.7950
EUR/GBP was little changed following the publication of the UK’s latest inflation report.
Despite expectations that consumer price pressures would creep higher, inflation remained unchanged in May.
With the report doing little to boost the Pound, the Euro kept its British counterpart at bay ahead of the release of the Eurozone’s Industrial Production data.
However, Sterling later registered a modest gain against the Euro despite industrial production in the Eurozone printing more strongly than anticipated.
The data saw economist Stephen Brown comment: ‘April’s strong rise in Eurozone industrial production is unlikely to be the start of a strong upturn. Although the rise more than reversed March’s 0.7% drop, it still leaves output lower than it was in January. Despite April’s strong gain, the industrial sector is unlikely to match Q1’s strength in Q2. In fact, to replicate Q1’s 0.9% q/q rise in production, it would need to increase by a further 0.7% in both May and June. But the recent weakness of industrial surveys suggests that such strong gains are unlikely.’
The Pound was boosted by the news that an attempt to block one of David Cameron’s proposed reforms to the UK’s EU membership failed. This news helped to balance out the impact of The Sun (the UK’s most widely read newspaper) coming out in support of the ‘Leave’ campaign.
Sterling volatility has reached a record-high as traders react to divergent opinion polls and many analysts predict additional wide-ranging price-swings to come.
(Previously updated 14:53 14/06/2016)
UK CPI to Trigger EUR/GBP Volatility
The Euro to Pound Sterling exchange rate edged slightly higher on Tuesday ahead of the release of the UK’s Consumer Price Index.
While accelerating inflation would lend the Pound support, ongoing ‘Brexit’ speculation is likely to limit GBP gains.
Sterling may also remain under pressure against the Euro if today’s Eurozone Industrial Production report shows the increase in output forecast by economists.
(Previously updated 17:00 13/06/2016)
The Euro to Pound Sterling exchange rate surged during Monday’s European session, extending losses triggered on the weekend after an EU referendum opinion poll suggested ‘Leave’ would be victorious by 10 percentage points. The Euro to Pound Sterling (EUR/GBP) exchange rate rallied by around 0.6%.
— Bloomberg (@business) 13 June 2016
Meanwhile, mounting uncertainty regarding the timing of a Federal Reserve interest rate hike, with some voicing concerns that the next move will be a rate cut, has pushed the US Dollar lower; boosting the single currency thanks to negative correlation.
Euro (EUR) Exchange Rate Surges despite Quiet Data Docket
European ecostats are thin-on-the-ground today with only speeches from European Central Bank (ECB) officials on the bill. Euro exchange rate appreciation, therefore, can be linked to dampened demand for the US Dollar even in times of heightened safe-haven demand.
The US Dollar’s depreciation is mostly uncertainty regarding the timing of a Federal Reserve interest rate hike. Most analysts accept that it is highly unlikely Fed officials will opt for a policy change this week given the need to await the outcome of the UK’s ‘Brexit’ referendum.
Also stimulating gains for the single currency is a hawkish speech from ECB policy maker and Bundesbank President Jens Weidmann, calling for the central bank to hold back from additional stimulus in order to give current measures time to affect changes.
Speaking at a conference in Frankfurt, Weidmann explained, ‘one thing I want to stress: our definition of price stability requires that the targeted inflation rate is achieved in the medium term. This gives us enough time to wait for the effect of the adopted monetary policy measures on prices.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7929.
Pound Sterling (GBP) Exchange Rate Pushed Lower as EU Referendum Vote Draws Closer
With a complete absence of domestic data to divert the depreciation triggered over the weekend, the Pound has registered clear losses versus the majority of its currency peers in the early stages of Monday’s European session.
An opinion poll by ORB for The Independent newspaper initiated the Sterling downtrend. The poll indicated that ‘Leave’ would be victorious by a massive 10 percentage points, spooking investors convinced that a ‘Brexit’ will be damaging to the British economy.
Following the result of the ORB poll the former Tory minister Owen Paterson, who is a major player in the ‘Leave’ campaign, said;
‘I have been to Cornwall, to Wiltshire, to Sussex. I went to Northern Ireland to an Ulster farmers rally. That was an interesting one, where the majority were in favour of Remain but by the end of the talk it had completely swung round the other way. There seems to be an overwhelming desire to Leave outside of London.’
Fresher polls have showed that the vote will be much closer. This has done little to alleviate trader concerns, however, as uncertainty continues to drive investors away from Sterling.
EUR/GBP Exchange Rate Forecast: UK Inflation Data to Provoke Volatility
With Sterling subject to considerable volatility as traders react to news regarding the EU referendum, there is every chance that domestic data will have a muted impact.
However, Tuesday’s Consumer Prices data should be impactful given that low inflation has been a persistent issue for the Bank of England (BoE), keeping the benchmark interest rate at the record-low 0.50% for a considerable period.
Eurozone Industrial Production data has potential to cause movement for the common currency, although EU referendum developments may also begin to have a greater impact on the Euro as we draw ever closer to the June 23rd vote.
US Advance Retail Sales data may also impact on the EUR/GBP exchange rate as a poor result would push the Euro higher and see traders withdraw from riskier assets such as the British Pound.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within the range of 0.7882 to 0.7986 during Monday’s European session.