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EUR GBP Exchange Rate Drops -0.6% after Pessimism about ECB Inflation Outlook

The Euro to Pound exchange rate has slumped today, with an opening high of 0.8734 giving way to a lower 0.8683 after an ECB prediction.

  • EUR GBP rate slides to 0.8683 – GBP EUR trades up at 1.1511
  • Euro slumps on rumoured ECB inflation downgrade – Weak domestic data fails to offer support
  • Pound surges despite election jitters – Latest poll suggests expanding Conservative lead
  • Euro losses could grow if ECB confirms lower inflation target – High Pound volatility likely on remaining election polls

The Euro to Pound weakness observed this week comes ahead of the UK general election, which traders still seem to think will bring a Conservative majority.

Euro Pound Demand Tumbles on Negative ECB Predictions

The Euro’s surprise drop against Sterling today has come from a Bloomberg report, which states that the European Central Bank (ECB) may be cutting its inflation outlook.

The prediction, which assumes the ECB will expect 1.5% inflation over 2017-2019, is backed up by lower energy prices in the Eurozone.

Lower inflation estimates mean lower chances of ECB policy-tightening. In turn, this lowers the chances of the ECB raising interest rates in the near-term; rates have remained at 0% since March 2016.

Pound Rallies on ECB Forecast despite Incoming Election Polls

With election voting due to start in less than 24 hours, the Pound has been in surprisingly high demand against the Euro.

This is mainly due to the Euro-weakening inflation outlook, but an early election poll has also triggered GBP appreciation.

An Opinium poll covering June 4th to June 6th has put Conservative popularity on 43%, with Labour on a lower 36%. This moderate gap between the two leading parties has reassured traders, especially after other polls put the two just a single percentage point apart.

Near-Term EUR GBP Forecast: Polling Stats to Cause High Turbulence

Thursday’s Eurozone news will be high-impact, but may cause two sharp drops in Euro demand. First off will be third estimates for Q1 GDP growth, where an annual reduction is forecast from 1.8% to 1.7%.

Also out will be a series of ECB announcements, covering interest rates, a press conference by President Mario Draghi and the central bank’s inflation outlook.

If forecasts are right and the ECB does downgrade its outlook on inflation then the Euro could tank against the Pound, before the real election volatility starts on Thursday evening.

Election polls are the main source of Pound influence today; even at this late stage, they could still cause a major Sterling shift if they forecast a hung parliament.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8683 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1511.