As the end of the week approached, EUR/GBP continued trending at 2016’s best rates.
The Euro Pound exchange rate was little changed following the release of the Eurozone’s preliminary growth figures for the second quarter, with the quarterly result of 0.3% and the annual figure of 1.6% matching forecasts.
- Euro Pound Exchange Rate Forecast to Pass 0.86 – Outcome depends on Euro’s resilience
- Spain and Portugal Set New Targets Without Fines – Boosts Euro on Wednesday
- Update: German CPI and Eurozone GDP Solid – Causes sturdy Euro on Friday
- Update: UK Construction Output shows Contraction – UK construction still strugglin
- Forecast: Final July CPI Next Week – Sterling unlikely to make recovery
Euro Pound Exchange Rate Forecast to End Week Near Three-Year-Highs
The Euro trended as one of the market’s strongest major currencies on Friday evening, leading to a week of solid gains for the EUR/GBP exchange rate.
The pair gained around a pence and a half in value throughout the week, ending up above the key level of 0.86 as the week’s trading sessions drew to a close.
Next week will see the publication of various key Consumer Price Index (CPI) reports for July.
While the Eurozone has already had preliminary inflation figures for July, this will be the UK’s first real indication of how the Brexit vote has affected consumer prices.
If there is an uptick in British consumer prices due to the low value of the Pound, it could cause issues for the Bank of England’s (BoE) historically low interest rate of 0.25%.
(Previously updated 14:17 BST 12/08/2016)
EUR GBP Hits High of 0.8613 After UK Construction Data
On Friday the Euro Pound exchange rate extended previous gains following the publication of the UK’s latest construction figures.
The Construction Output report detailed a worse-than-forecast annual result of -2.2% but a slightly better-than-expected monthly slip of -0.9%.
The EUR GBP exchange rate was trending in the region of 0.8608 after the data was published.
The pairing remained above the 0.86 level after the Eurozone’s second quarter growth data was published.
The quarter-on-quarter expansion of 0.3% and annual growth of 1.6% was in line with forecasts.
(Previously updated 08:00 12/08/2016)
EUR/GBP has been steadily advancing this week, holding back any Sterling attempts to recover since last week’s Bank of England (BoE) announcement and the central banks decision to cut interest rates while unleashing a raft of other stimulus measures. The pair has gained around once cent since the week’s opening levels of 0.8477 and trended in the region of 0.8570 on Wednesday afternoon. By Thursday morning the Euro had brushed a high of 0.8610 against the Pound.
Although data from the Eurozone had failed to impress, the inflation reports for France and Italy weren’t sufficiently high-impact to prevent the Euro outperforming its struggling British rival.
Sterling sentiment also remained low as a result of recent concerns surrounding the Bank of England’s (BoE) quantitative easing programme.
Euro (EUR) Holds Ground on Perceived Eurozone Resilience
While a weak US Dollar meant that risk-associated currencies were up on Wednesday, the Euro was able to hold its ground against other major currencies throughout the day, easily advancing on the Pound and US Dollar due to solid sentiment towards the Eurozone.
The week’s data thus far has done little to inspire Eurozone movement, with the shared currency largely performing solidly due to data from the last few weeks that indicated the Eurozone economy had weathered more Brexit damage than expected.
However, alongside a weak Pound and US Dollar, the Euro was also boosted by news that the Eurozone’s governments had set new fiscal targets for Portugal and Spain.
Portugal and Spain’s economies have been struggling as of late, and there was speculation that the two nations should be fined for missing out on deficit targets.
Eurozone investors were relieved by the confirmation that the European Commission would not be fining either country. MarketWatch reported;
‘The commission acknowledged the difficult economic environment and the reform efforts of both countries, but the decision led some to warn the bloc’s fiscal rules were being dangerously undermined.
… Eurozone governments agreed with the European Commission’s arguments about dropping the fines, which, at 0.2% of gross domestic product, could have amounted to billions of euros for the cash-strapped authorities of Spain and Portugal.’
Pound (GBP) Slumps on UK Economic Woes
The Pound was sold off further on Wednesday, continuing to lose out against major rivals as investors grew anxious over the day’s economic news.
Following Tuesday’s bearish report from NIESR that the UK economy appeared to be on track for contraction in July and Q3 2016, Sterling has dipped to new lows across the board.
This was worsened by market jitters amid news that the Bank of England (BoE) had failed to meet its quantitative easing purchase targets.
The bank announced last week that a new £60bn round of government bond purchasing would begin, but the first reverse auction failed as the bank fell short of £52m due to a lack of sellers.
The BBC reported on the bond-buying failure;
‘That has driven up prices and pushed down the return or yield, to investors.
As bond prices rise, yields fall, and vice versa.
Buying government bonds is often considered a safe investment but they now offer a tiny, in some case negative, return.
On Wednesday morning gilts maturing in 2019 and 2020 were yielding -0.1%.’
However, when the bank reattempted the reverse auction on Wednesday afternoon the purchase was successful. Regardless, some analysts have criticised the BoE’s QE scheme as a response to the holdup, and UK market sentiment remained low.
Euro Pound Exchange Rate Forecast: Key Datasets Expected on Friday
EUR/GBP is unlikely to experience considerable movement throughout Thursday due to a lack of vital ecostats.
If UK economic news remains relatively quiet throughout the day, this could afford the Pound a chance to recover slightly and could see the pair slip back towards 0.8500.
Friday’s session looks to be this week’s big Euro and Pound mover however, with a slew of vital Eurozone reports scheduled for publication in the morning. British construction output may influence the Pound slightly, but the Euro will drive EUR/GBP most.
Germany’s final July inflation figures will be published, with the results expected to meet preliminary figures of 0.3% for July and 0.4% for the year. This could be especially influential if it fails to meet preliminary scores.
When the initial data was published Jennifer McKeown commented; ‘While German inflation may reach the ECB’s 2 percent price stability ceiling in the coming months, it is unlikely to stay there for long. And with price pressures far weaker elsewhere in the region, the bank has reason to increase its policy support. We see it cutting its deposit rate further into negative territory and raising the pace of its asset purchases in September.’
Assuming German CPI comes in as expected though, the day’s set of preliminary Q2 Gross Domestic Product (GDP) reports for the Eurozone will likely inspire Euro movement.
With markets now more confident that the Eurozone has largely evaded Brexit-related shock damage, there is less reason to believe that the Eurozone’s economy has shifted gears since the end of Q2.
As a result, Q2’s growth figures should serve as a solid indication for the direction and health of the Eurozone economy as per usual. These figures certainly have the potential to be the biggest factor for next week’s Euro Pound exchange rate forecast.