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Euro to Pound (EUR/GBP) Exchange Rate Avoids Losses on Brexit Uncertainties

Euro to Pound (EUR/GBP) Exchange Rate Holds Away from Worst Levels

While the Bank of England (BoE) took a more hawkish tone than expected on Britain’s monetary policy outlook on Thursday, mixed UK data and Brexit uncertainties have limited Euro to Pound (EUR/GBP) exchange rate losses.

EUR/GBP opened at the level of 0.8823 this week. While it has hit a high of 0.8908 and a low of 0.8739, the pair looks on track to end the week in the region of 0.88.

Sterling (GBP) briefly saw a surge in demand on Thursday, following the Bank of England’s (BoE) highly anticipated February policy decision.

The bank left monetary policy frozen as expected but indicated that if Britain’s economy continues to meet BoE forecasts the bank is likely to take a more hawkish tone on interest rates in order to tackle high domestic inflation.

However, the bank’s economic forecasts for Britain rely on the possibility of smooth UK-EU Brexit negotiations and an optimistic outcome to talks. With Brexit uncertainties still high, the Pound was ultimately unable to capitalise on the BoE’s hawkish hints.

Euro (EUR) Keeps Pound Gains Limited thanks to Solid Eurozone Data

While no Eurozone news from recent sessions has been particularly surprising or impressive and the Euro (EUR) has been weakened by a stronger US Dollar (USD), it still found some support in recent domestic data.

Friday saw the publication of the Eurozone’s December industrial production stats from France and Italy, which came in stronger than analysts expected.

French industrial production was forecast to have improved slightly from -0.5% to 0.1% but instead climbed to 0.5% while the previous figure was revised higher to -0.3%.

Italy’s December industrial production stats beat expectations in both monthly and yearly prints, jumping to 1.6% and 4.9% respectively.

As a result, the Euro remained relatively appealing and its losses were limited, despite market disappointment that Thursday’s European Central Bank (ECB) economic bulletin contained nothing in the way of hawkish surprises.

Pound (GBP) Exchange Rates See Additional Pressure as UK Production Slumps

Sterling could have ended the week above its opening levels versus the Euro, but Friday’s UK ecostats were disappointing enough to weigh harder on the British currency.

Friday saw the publication of Britain’s December industrial and manufacturing production stats, as well as December’s trade deficit update.

Industrial production was highly disappointing. The monthly print came in at -1.3%, lower than the expected contraction of -0.9%, while the previous figure was revised lower from 0.4% to 0.3%.

UK trade was also disappointing, with the deficit unexpectedly deepening to £-4.896b.

Some analysts, such as James Knightley from ING Bank, believe that the latest data may even mean that UK growth for Q4 2017 could be revised lower;

‘Today’s data reinforces the message that the UK continues to underperform other developed market economies, growing at around half the rate of the US and the Eurozone. As such, while the Bank of England is clearly hinting at the potential for a May rate hike, we remain cautious on the longer term path for rates, particularly given the Brexit related uncertainty.’

Despite this though, the yearly manufacturing production results actually beat expectations of 1.2% and came in at 1.4%.

Euro to Pound (EUR/GBP) Forecast: Eurozone Growth and UK Inflation Data Ahead

Next week’s economic calendar includes multiple influential prints from the Eurozone and UK which could inspire movement in the Euro to Pound (EUR/GBP) exchange rate.

Tuesday will see the publication of Britain’s January Consumer Price Index (CPI) results. While a typically influential print, Brexit concerns could weigh on the Pound even if UK inflation comes in higher than expected.

This is because the Bank of England (BoE) has indicated that its UK monetary policy outlook relies on Britain securing a good deal with the EU and the Brexit process going smoothly.

As a result, Wednesday’s German growth and inflation stats might be more likely to influence movement in the Euro to Pound exchange rate.

Gross Domestic Product (GDP) data from Italy, The Netherlands and the Eurozone overall will also be published next Wednesday.

UK retail sales data from January will be published next Friday, but it seems more likely that the Pound will be influenced by Brexit developments and the Euro next week.