- Euro (EUR) Flat as CPI Meets Low Expectations – Reveals second month of deflation in 2016
- Sterling (GBP) Rallies on ‘Brexit’ Polls – Ipsos MORI report indicates strong ‘Remain’ lead
- Strong UK Retail Sales Boost Pound – Sterling rally continues on Thursday
- Forecast: ECB Minutes in Focus – Investors expect indication of future easing measures
The Euro to Pound Sterling (EUR/GBP) exchange rate plummeted during Wednesday’s session to hit its lowest point since February after new EU referendum polls shocked investors with a strong ‘Remain’ lead and underwhelming Eurozone data failed to boost the Euro.
EUR/GBP lost around -140 pips during Wednesday and since then the Pound’s rally has slowed. The pair is still edging lower however, and at the time of writing it was down almost –0.4% and trending in the region of 0.7657. The pairing’s downtrend is largely due to falling ‘Brexit’ bets. Although the UK’s EU referendum is still over a month away. it appears increasingly unlikely that the UK will vote to leave the European Union.
Euro (EUR) Trails Behind on Light Data Week and ECB Concerns
The Euro found it difficult to hold its ground over the last few days as the small amount of key Eurozone data did little to inspire investors of the shared currency.
Wednesday’s final April Consumer Price Index (CPI) report largely met fairly dovish forecasts.
The monthly score met the new estimate of 0.0%, letting down the previous projection of 1.2%. On the other hand, the year-on-year score dropped by -0.2%, revealing that the Eurozone had been in deflation for the second month since the start of 2016.
After the uninspiring report, investors began to readjust on the Euro as they grew concerned that further deflation would lead to further easing measures from the European Central Bank (ECB), which is due to release minutes from its latest meeting on Thursday.
Eurozone construction output released on Thursday morning also disappointed, with worsening contraction of -0.6% to -0.9% month-on-month and 3.4% to -0.5% year-on-year.
Pound (GBP) Bullishness Continues as Retail Sales Beat Expectations
It looks to be a bullish week for the Pound after last week’s relatively flat EUR/GBP movement. This week, new polls indicating a stronger lead for the EU referendum’s ‘Remain’ campaign inspired confidence in the Pound as investors continued to bet that a ‘Brexit’ was unlikely.
The latest poll was released from Ipsos MORI on Wednesday, which showed a large 18-point lead of 55% for ‘Remain’ voters, while 37% voted ‘Leave’. Betting company Betfair also suggested that the current probability of the UK remaining in the EU was around 76%.
British data has also been relatively solid, perhaps leaving investors to hope that the Bank of England (BoE) could behave more hawkishly if Britain votes to ‘Remain’ in June’s vote.
Wednesday’s employment figures revealed that unemployment and jobless claimant counts came in at 5.1% and 2.1% as expected.
Thursday’s retail sales were especially impressive and helped the Pound retain its Wednesday bullishness after a briefly flat period on Thursday morning. Retail sales escaped month-on-month contraction of -0.7% and -0.5% in regular and auto fuel prints, and increased well past estimates to score 1.5% and 1.3% respectively.
The yearly prints fared even more impressively. Retail sales were expected to slow from 2.6% to 2.0% year-on-year, but instead increased to 4.2%. Similarly, the yearly retail sales including auto fuel score beat forecasts of 2.5% by jumping from 2.0% to 4.3%.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: ECB Meeting Minutes in Focus
The Euro could finally see some more inspired movement later in Thursday’s session as the European Central Bank’s (ECB) latest meeting minutes are due for release around noon.
However, while the report will influence the shared currency, it is likely to send the Euro plummeting if it confirms analyst suspicions that policymakers will hint at further easing measures in coming months.
After poor inflation reports for April, economists are likely to believe the Eurozone economy is underperforming and that further easing will be introduced soon. As a result, the Euro could continue to feel pressure going forward.
The EUR/GBP exchange rate will likely continue to be influenced by Thursday’s news until the end of the week, with Friday relatively data-light besides Britain’s CBI trends report.
The Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7657, while the Pound Sterling to Euro (GBP/EUR) exchange rate trades at around 1.3060.