European Central Bank (ECB) Uncertainty Fails to Keep Euro to Pound Exchange Rate Weak
While there are concerns about how the Eurozone market could be affected by a potential ‘trade war’, the Euro to Pound (EUR/GBP) exchange rate continued to climb on Wednesday morning, ahead of the European Central Bank (ECB) policy decision on Thursday.
After opening this week at the level of 0.8923, EUR/GBP briefly dipped but has slowly advanced since yesterday. On Wednesday morning, EUR/GBP touched on a high of 0.8966, its best level since October 2017.
Since the end of last week, markets have been anxious that the US Presidential administration could spark a global ‘trade war’ with its plans for stricter trade tariffs on various US imports.
However, as this has mostly impacted and weakened the US Dollar (USD) directly, the Euro (EUR) has benefitted due to its negative correlation with the US Dollar.
The Euro advanced ahead of Thursday’s ECB meeting, despite speculation that the bank may issue warnings about the US trade stance.
Pound (GBP) Exchange Rate Movement Limited as Brexit Concerns Weigh
The Pound (GBP) has been unable to hold its ground in recent sessions due to a lack of impressive UK ecostats as well as persistent concerns about how the Brexit process is unfolding.
Investors have been anxious that a post-Brexit UK-EU transition period is still not a done deal, and until a transition period is essentially confirmed the Pound’s potential for gains is highly limited.
Markets expect that an EU summit set to take place later in the month is likely to spark a fresh round of talks deciding the future relationship of the UK and EU. Pound traders hope that a transition period will near agreement during this summit.
Britain’s services stats and February composite PMI beat expectations on Monday, but this has not been enough to notably improve the outlook for the UK economy or the Pound.
Euro (EUR) Exchange Rates Little Changed Following Eurozone Growth Projections
The Eurozone’s third Q4 2017 Gross Domestic Product (GDP) projections were published on Wednesday and essentially met expectations, having little impact on the Euro or the Eurozone outlook.
Meeting expectations, the Eurozone’s quarter-on-quarter growth rate figure slowed from 0.7% to 0.6%. The year-on-year figure slowed from 2.8% to the forecast 2.7%.
This week’s other Eurozone data has also had no notable effect on Euro trade, with investors still generally optimistic that the Eurozone will continue to see strong growth throughout 2018.
Sunday’s 2018 Italian general election results did cause some political uncertainty, but investors have perceived Italy’s political concerns as being low-influence compared to optimistic political news in Germany or the Eurozone’s strong economic outlook.
Euro to Pound Forecast: EUR/GBP Could Continue to Climb if ECB Takes Optimistic Stances
How might the European Central Bank (ECB) react to news of a hung parliament or populist party success in Italy? Or the recent stream of protectionist rhetoric and ‘trade war’ threats from the US Presidential administration?
Analysts do not expect the ECB to make any changes to monetary policy during its March policy decision on Thursday, but any changes the bank makes to its perceived tone is likely to have an effect on Euro trade.
If the bank maintains its usual cautiously optimistic tone and continues to hint that its language could become more hawkish later in the year, the Euro is unlikely to see much shift in movement.
However, if the bank surprises by being more hawkish or dovish than expected in the face of recent political or economic developments, this would affect Euro to Pound (EUR/GBP) exchange rate movement for the remainder of the week.
Some notable ecostats will be published on Friday which may further influence Euro and Pound investment before markets close this week.
German and UK trade results from January will be published, as well as January production data from France and the UK. NIESR will also publish its February UK Gross Domestic Product (GDP) estimate.