EUR/GBP Recovers Despite Lack of Eurozone Data
- German Data Disappoints – Industrial production declines, wider than forecast surplus
- British Trade Deficit Narrows – But deficit ultimately worse quarter-on-quarter
- Update: British Production Disappoints – UK industry enters third recession in 8 years
- Forecast: How will ‘Super Thursday’ Impact the Pound? – BoE expected to leave rates frozen
The Euro gained around 0.4% against the Pound on Wednesday despite a largely empty Eurozone economic calendar for the day, as UK data instilled economic concern into investors.
EUR/GBP recovered from a low of 0.7868 to trend in the region of 0.7900 as Wednesday’s session drew to a close, in response to the latest British industrial and manufacturing production reports.
While the individual scores were mixed, with industrial production improving year-on-year but falling month-on-month, the overall results were far from good as news that UK industry had entered its third recession in eight years spread across headlines on Wednesday.
Thursday will see the Bank of England (BoE) announce its latest interest rate decision. While leaving rates frozen is unlikely to inspire Pound movement, investors will likely pay close attention to indication of future policies, as well as the latest inflation report.
The minutes from the BoE’s policy gathering will also be of considerable interest. If any of the Monetary Policy Committee vote to cut interest rates we can expect to see the Pound tumble against its most-traded currency counterparts.
A reduction to UK growth or inflation forecasts would also have a negative impact on GBP demand.
Hints that the latest Greek debt discussions are moving in the right direction gave the Euro a boost against its British rival as markets opened on Wednesday.
According to the Wall Street Journal;
‘Greece’s leader Alexis Tsipras on Tuesday claimed a major breakthrough in its debt-and-austerity talks, even as officials from Greece’s creditors warned that big obsticles remain to a deal that keeps the country afloat this summer.’
With Eurozone data lacking, UK Industrial/Manufacturing Production reports and any developments in the Greek situation will be the main cause of EUR/GBP movement in the hours ahead.
Currently, the Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7892.
While the Euro to Pound Sterling exchange rate initially fluctuated narrowly on Tuesday in response to mixed data, the pair appears to have moved in the Pound’s favour as the European session draws to an end.
This is despite a more in-depth UK trade deficit report from the Office for National Statistics (ONS) revealing that the British trade deficit actually worsened in Q1 from Q4 2015 and is in fact at its worst levels since the 2008 crisis.
Investors appear to have focused on March’s better-than-expected deficit figures for the basis of some Pound Sterling profit-taking
The Euro to Pound Sterling (EUR/GBP) exchange rate has seen little movement at all since Monday’s shifts from highs of 0.7925 to lows of 0.7870.
Mixed Eurozone data published on Tuesday morning looks to be leaving EUR/GBP uninspired for longer yet. The pair continues to trend narrowly in the region of 0.7890, remaining close to last week’s closing levels for the second consecutive day.
Euro (EUR) Left Floundering on Mixed German Trade Data
Eurozone data released on Tuesday morning left the Euro uncertain, with key prints such as German industrial production disappointing while trade data for the Eurozone’s largest economy printed above expectations.
German industrial production disappointed investors with a bearish -1.3% contraction in its month-on-month report. Its yearly report was also below expectations. The modified previous figure of 2.0% was expected to slow to 1.1%, but instead dropped to 0.3%.
The March German trade balance update indicated that February’s surplus had to be adjusted down to 20.2b. However, expectations that it would grow to 20.6b were surprised by an improvement to 26.0b.
The current account grew from 21.1b to 30.4b, while month-on-month exports improved from 1.3% to 1.9% despite estimates exports would drop by -0.1%. Imports, on the other hand, came in negatively. February’s score of 0.1% was expected to contract -0.4%, but confounded investors with a considerable contraction of -2.3%.
Pound (GBP) Uninspired By Latest News
Monday was largely uneventful for the Pound as the eco calendar remained quiet and news headlines were once more dotted with ‘Brexit’ rows.
As Sterling has already weakened considerably in recent months from fears that Britain would leave the European Union in June, creating an uncertain future for British trade, ongoing debates seem to have little effect on its movement.
This is likely to continue as long as polls suggest that a ‘Brexit’ is unlikely. The Pound also occasionally strengthens on any news that bolsters the ‘Remain’ campaign, such as a recent interview with Nato chiefs in The Telegraph.
As key ‘Leave’ campaigner Boris Johnson often cited Nato as a more solid ally for Britain than the EU, news that Nato believes Britain should ‘Remain’ may have dented his argument.
Lastly March’s British trade balance updates were released on Tuesday morning, printing positively. The key goods trade deficit lightened from £-11.420b to £-11.200b beating out forecasts of around £-11.300b, while the total trade deficit narrowed from £-4.30b to £-3.83b.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Eurozone Data Quiet Until Thursday
With Tuesday’s German data being the Eurozone’s last key dataset scheduled for publication until Thursday’s session, the Euro’s currently uninspired movement is likely to continue on through Wednesday unless other ecopolitical news lights up headlines.
‘Brexit’ debates are likely to rage on in the UK this week, but as they currently hold little sway over the Pound, Sterling is more likely to be influenced by data and economic warnings. Investors could instead use Tuesday’s positive trade balance reports to support a Pound recovery.
British production data from March is due tomorrow, including industrial and manufacturing production prints. Monthly industrial production is currently forecast to improve from a -0.3% contraction to 0.5%. Manufacturing is similarly expected to escape negative territory, from -1.1% to 0.3% month-on-month.
This is followed by NIESR’s latest Gross Domestic Product (GDP) estimate, due for release on Wednesday afternoon. This has the chance of weakening the Pound if it estimates that British growth could be as low as 0.1% or 0.2% in Q2 as investors fear.
Of course, one the main causes of EUR/GBP exchange rate volatility this week is likely to be Super Thursday’s trio of Bank of England (BoE) announcements. The central bank’s rate decision, meeting minutes and inflation forecast could all have a notable impact on demand for the Pound.
The Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7890, while the Pound Sterling to Euro (GBP/EUR) exchange rate trades at around 1.2670.