Homepage » Brexit » Euro Pound Surges to 2017 Highs as Investors React to Latest ECB Meeting

Euro Pound Surges to 2017 Highs as Investors React to Latest ECB Meeting

  • Euro Pound Exchange Rate Reaches 0.89 – New 2017 highs on Thursday
  • Pound Plunges on UK Inflation – Bank of England (BoE) tightening bets drop
  • EUR Update: ECB Meeting Contains Little Surprises – Euro up on hopes for autumn news
  • GBP Forecast: UK Public Borrowing Ahead – Pound could see late-week movement

The Euro Pound exchange rate hit a new 2017 high on Thursday afternoon, as the Pound was sold due to retail sales data and the Euro was bought on the latest European Central Bank (ECB) speculation.

At the time of writing, EUR GBP had just recently hit a fresh 2017 high of 0.8968.

The ECB left monetary policy frozen and made no notable changes to its policy statement, as expected.

However, in a press conference following the meeting ECB President Mario Draghi hinted the bank may discuss what’s next for its quantitative easing (QE) measures some time in autumn. This was enough to get Euro hawks excited.

[Previously updated 12:43 BST 20/07/2017]

Despite a better-than-expected UK retail sales report, the Euro Pound exchange rate tested its best weekly levels again ahead of Thursday’s European Central Bank (ECB) meeting.

UK retail sales improved from -1.1% to 0.6% month-on-month and from 0.9% to 2.9% year-on-year.

While initially investors were hoping it indicated consumers were resilient in the face of Britain’s pay squeeze, the Office for National Statistics (ONS) reported that the rise in retail activity was due to the hot summer weather.

EUR GBP could still plummet in the afternoon if the European Central Bank (ECB) takes a cautious or dovish stance in its policy decision.

[Previously updated 16:55 BST 19/07/2017]

The Euro Pound exchange rate slipped during Wednesday’s session. The Euro steadied while the Pound was bought up from its Tuesday lows.

Euro trade will be heavily influenced by the European Central Bank (ECB) meeting – that is, if the bank takes any shifts in tone.

If the bank’s policy statement contains no new information, investors will be reading into comments from ECB President Mario Draghi in his following press conference.

[Previously updated 12:55 BST 19/07/2017]

Despite slipping from its best weekly levels on Tuesday evening, the Euro Pound exchange rate has sustained most of this week’s gains so far. EUR GBP currently trends at around 0.8840.

The Euro failed to hold its highs amid underwhelming Eurozone ecostats and anticipation for this week’s European Central Bank (ECB) meeting. A lack of key UK data on Wednesday helped the Pound recover from its lows.

The Eurozone’s May construction output results dropped from 3.3% to 2.6% year-on-year, which may also have limited the Euro’s strength today.

[Published 06:00 BST 19/07/2017]

The Euro Pound exchange rate soared on Tuesday. A sturdy Euro was able to capitalise on the day’s Pound selloff, as traders reacted to news that British inflation fell short of expectations in June. However, the Euro’s strength is limited ahead of this week’s European Central Bank (ECB) meeting.

EUR GBP began the week trading at the level of 0.8755. The pair slowly advanced due to Brexit jitters and then surged to a weekly high of 0.8895 following Tuesday’s UK CPI stats.

Euro (EUR) Gains Limited on ECB Anticipation

While the Euro has benefitted from Pound weakness this week, the shared currency continues to face psychological resistance near its best levels.

This is because investors are unsure of the European Central Bank’s (ECB) mid to long-term monetary policy outlook.

Some reports suggest the ECB could announce an end-date for its quantitative easing (QE) scheme towards the end of the year. However, others say ECB officials are still dovish and are hesitant to decide on an end-date for QE at all.

As a result, investors are highly anticipating this week’s July ECB policy decision before they make any shifts on the Euro.

This week’s Eurozone data has been decent but investors have been largely unfazed amid ECB speculation and anticipation.

Monday saw the publication of the Eurozone’s June inflation results. While overall inflation only reached 0% month-on-month and slowed from 1.4% to 1.3% year-on-year, core inflation continued to edge higher as analysts expected. Yearly core inflation advanced from 0.9% to 1.1%.

Tuesday’s July economic sentiment surveys from ZEW fell short of expectations but EUR GBP surged regardless. Eurozone economic sentiment slowed from 37.7 to 35.6, while German sentiment slipped from 18.6 to 17.5.

Pound (GBP) Plunges as Bank of England (BoE) Tightening Bets Fade

The Pound saw a sharp selloff on Tuesday, following the publication of Britain’s June Consumer Price Index (CPI) results.

Analysts had expected Britain’s inflation stats to remain high, with hawkish investors hoping it would keep enough pressure on the Bank of England (BoE) to persuade the bank to tighten Britain’s monetary policy or withdraw some of its quantitative easing (QE) measures.

However, speculation of tighter BoE policy faded when UK inflation fell short of expectations.

Year-on-year inflation was expected to hold at around 2.9%, but instead slid down to 2.6%. Monthly inflation slowed to a stagnant 0% despite being projected to only slip from 0.3% to 0.2%.

While the inflation data was disappointing for investors hoping for tighter BoE policy, it did lighten Britain’s pay squeeze issue. If inflation continues to slow and wage growth rises, British consumers will be able to more comfortably afford high street shopping.

The potential lightening of the pay squeeze would ultimately be good for Britain’s long-term economic outlook. Danske Bank economist Conor Lambe believes that the wage squeeze is already hurting economic growth;

‘The latest labour market data showed that the rate of nominal wage growth over the year to March-May 2017 was 2 per cent. Therefore, despite today’s fall in the inflation rate, real wage growth is still in negative territory.

Above target inflation, and the accompanying negative real wage growth, is continuing to squeeze UK consumers and this is likely to be reflected in next week’s preliminary estimate of GDP growth in the second quarter of this year.’

So while the Pound suffered from weak inflation this week, it could still benefit in the long-run if real wages improve.

Euro Pound Forecast: ECB Meeting in Focus

The European Central Bank (ECB) is not expected to make any changes to monetary policy in July’s policy decision on Thursday.

Still, investors are speculating that the ECB could give new forward guidance hints. ECB President Mario Draghi will be holding a press conference following the meeting too.

If the ECB maintains its usual tone and hesitates to indicate whether or not the bank will talk about adjusting policy any time soon, the Euro could weaken slightly.

A more hawkish tone from the bank, such as hints that the withdrawal of quantitative easing (QE) could be discussed soon, would leave the Euro Pound exchange rate stronger towards the end of the week.

On the other hand, if the bank indicates it may need to leave QE frozen for longer than expected, the Euro would plummet. This could lead to EUR GBP shedding all of this week’s gains so far.

Thursday will also see the publication of Britain’s June retail sales results. If these impress it could boost hopes that Britain’s economy has been resilient despite a pay squeeze, but worse-than-expected retail activity would indicate the pay squeeze has had a concerning impact on consumer activity.

The Euro Pound exchange rate is unlikely to see much movement on Wednesday unless the Pound is bought from its lows or Bank of England (BoE) officials address this week’s UK inflation stats.