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Euro to Pound Exchange Rate Forecast: EUR/GBP Outlook Could Shift on Eurozone Inflation Results

Euro to Pound Exchange Rate Fluctuates as Investors Anticipate Economic and Political News

Political uncertainties and a stronger US Dollar (USD) left the Euro to Pound (EUR/GBP) exchange rate weaker towards the end of last week, following days of wide fluctuations.

EUR/GBP opened last week at the level of 0.8924. Despite hitting a four-month-high of 0.8965 on Wednesday, the pair ultimately fell and closed the week at the level of 0.8886. This week the pair has remained close to its opening levels so far.

News of a hung parliament in Italy and the rising popularity of populist parties in the nation worsened market concerns that French President Emmanuel Macron would be unable to smoothly enact his plans for Eurozone reform.

On top of this, the Euro (EUR) has been weakened by stronger market demand for its rival, the US Dollar, amid hopes of softening diplomatic tension between the US and North Korea.

Pound (GBP) Volatility Softens as Brexit News Takes a Backseat

Investors are finding the idea of making large moves on the Pound (GBP) from Brexit developments increasingly unappealing, as the constant back and forth in ‘hard Brexit’ and ‘soft Brexit’ speculation is leaving the process in too much uncertainty.

Until more concrete developments on Brexit negotiations come in, the Pound is likely to remain relatively limited and range bound against the Euro.

For now, the Pound outlook is more likely to be influenced by any surprising shifts in the UK Treasury’s views on fiscal policy, as well as UK economic developments.

Last week’s UK data was underwhelming. Industrial production and manufacturing production fell short of expectations in January, worsening concerns that Britain’s economic activity was losing its resilience amid the Brexit process.

Eurozone Continues to Grow at Impressive but Expected Pace

Investors have had little reason to keep buying the recently strong Euro, as the European Central Bank (ECB) has continued to indicate that the Eurozone economy is strengthening about as much as the bank expects.

Last Thursday saw the ECB hold its March policy decision. As expected, the bank left monetary policy frozen.

Notably, the ECB removed phrasing, suggesting that quantitative easing (QE) bond-buying could be ramped up if necessary, from its monetary policy statement.

However, as ECB President Mario Draghi indicated that this change had been planned for some time and did not reflect any changes in the Eurozone economic outlook from the previous meeting, it failed to boost the Euro.

As a result, investors are highly anticipating upcoming Eurozone inflation stats. If inflation data surprises investors it could influence the ECB monetary policy outlook and the outlook for the Euro itself.

Euro to Pound (EUR/GBP) Forecast: Eurozone Inflation and UK Spring Statement in Focus

Key Eurozone data due for publication in the coming sessions is likely to influence movement in the Euro to Pound (EUR/GBP) exchange rate, while Sterling movement could take a backseat unless the UK Spring Statement surprises.

Final February Consumer Price Index (CPI) results from throughout the Eurozone will be published and could influence the Euro outlook if they fall short or higher than expected.

Tuesday will see the publication of Spain’s final February inflation results, followed by German inflation data on Wednesday and French inflation on Thursday.

Lastly, Italian and overall Eurozone inflation results will be published on Friday.

If Eurozone inflation beats expectations, EUR/GBP is likely to strengthen as it would boost market speculation that the Eurozone economic could sustain tighter monetary policy sooner than the European Central Bank (ECB) previously expected.

Brexit news could continue to drive the Pound, but Sterling movement is likely to be limited unless the outlook notably changes. Tuesday’s UK Spring Statement could shift Pound trade if it surprises investors in some way.