Euro to Pound Sterling (EUR/GBP) Exchange Rate Trends Narrowly ahead of ECB Decision
With the UK’s latest employment data expected to show a sturdy uptick in average earnings and the European Central Bank’s (ECB) latest policy decision looming, the Euro to Pound Sterling exchange rate was left trending in a fairly narrow range.
Positive British job numbers could send Sterling higher and a dovish tone from the ECB has the potential to drive EUR/GBP to a multi-week low.
As it stands, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7903
US Dollar (USD) Extends Downtrend after Latest Fed Speech
Comments from Federal Open Market Committee (FOMC) vice-chairman William Dudley did nothing to support the US Dollar (USD) on Monday afternoon, allowing the Euro to US Dollar (EUR/USD) exchange rate to make fresh gains. The policymaker reiterated that the Fed’s intention is to tighten monetary policy gradually, seeming to further undermine the likelihood of an imminent rate hike and weakening the appeal of the ‘Greenback’.
- Worries over Greek bailout talks failed to drag on Euro
- Pound slumped after disappointing UK housing data
- US Dollar weakened as imminent Fed rate hike looks increasingly unlikely
- EUR exchange rates forecast to soften ahead of ECB policy meeting
Euro (EUR) Trends Higher despite Concerns over Greek Debt Resolution
Markets saw a sharp increase in safe-haven demand on Monday morning following the failure of oil producers to agree an output freeze over the weekend. This bolstered the Euro (EUR) against rivals in spite of persistent concerns over the outlook of the Greek economy. Creditors resumed talks regarding the beleaguered Hellenic nation’s bailout review at the start of the week, although parties are said to still be lacking agreement in a number of areas. Despite the more positive nature of comments when negotiations were paused for the IMF spring meetings, the previous sticking points of debt relief and bad loans appear to have flared up again, putting a severe dampener on the odds of an imminent agreement.
Later in the week the single currency could return to a weaker trend as a result of the European Central Bank’s (ECB) April policy meeting. Markets will be keen to get a fresh gauge of the mood amongst policymakers, particularly after the wide raft of monetary policy measures deployed at the March meeting. Expectations are not as heightened for action this time, however, as researchers at Danske Bank note:
‘We do not expect any policy changes but we believe Draghi will sound dovish as inflation expectations are still very low and the effective EUR is stronger. Specifically we expect Draghi to re-open the door for rate cuts.’
While ECB President Mario Draghi may well attempt to talk down the value of the Euro once again the impact of his words may be more limited than in the past, particularly as notorious hawk Jens Weidmann has regained his vote on monetary policy.
‘Brexit’ Worries Weigh on Pound Sterling (GBP) Exchange Rate
Confidence in the Pound (GBP) retreated once again with the revelation that the Rightmove House Price Index had dipped from 7.6% to 7.3% on the year in April. This suggestion of slowing within the UK housing market was not well received by investors, prompting a sharp downturn thanks to the muted appeal of Sterling. Now that the official EU referendum campaigning period has begun, ‘Brexit’ debate has naturally intensified, with Chancellor George Osborne unveiling a Treasury report that suggests the severe negative impact a ‘Leave’ vote could have on the UK economy.
Sterling could recover some of its recent losses if Wednesday’s raft of UK employment data proves encouraging. While the domestic unemployment rate is not expected to see any change, forecasts suggest that average weekly earnings saw an increase in the three months to February. Although the Bank of England (BoE) indicated at its last policy meeting that it will maintain a more dovish outlook ahead of the referendum, any signs of improving wage growth are nevertheless likely to encourage Pound bullishness.
The UK’s unemployment rate is forecast to remain at 5.1%.
US Dollar (USD) Softened as Chances of Fed Rate Hike Retreat Further
Ahead of the weekend the US Dollar (USD) was dented by the news that the latest University of Michigan Confidence Index had failed to rise as forecast, instead ticking lower from 91.0 to 89.7. This weaker showing discouraged speculation of an imminent interest rate hike from the Federal Open Market Committee (FOMC), denting the appeal of the ‘Greenback’. Some of this malaise persisted on Monday morning, keeping the US Dollar to Euro (USD/EUR) exchange rate on a downtrend in spite of a sharp rise in safe-haven demand.
Investors could take renewed confidence from the April NAHB Housing Market Index, however, as it is expected to offer a further indication that the US housing market is in a stronger state. Comments from New York Fed President and vice-chairman of the FOMC William Dudley could also provoke some additional US Dollar movement. Should Dudley continue to take a more dovish tone with regards to monetary policy then the ‘Greenback’ could cede further ground to its safe-haven rival.
Current EUR, GBP, USD Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was making gains around 0.7965, while the Euro to US Dollar (EUR/USD) pairing was on an uptrend at 1.1303. Meanwhile the Pound Sterling to US Dollar (GBP/USD) exchange rate was slumped in the region of 1.4195.