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Euro Pound Advances As UK Ecostats Weaken Sterling Outlook on Friday

  • Euro Pound Exchange Rate Above 0.88 Once More – Can it hold this key level?
  • Euro Supported by ECB Minutes, Trade Deal – EU and Japan agree to free trade pact
  • UK Trade Balance Disappoints – Pound drops on Friday
  • EUR Forecast: German Inflation Stats Next Week – As well as trade balance data

Euro Pound Jumps on Friday

The Euro Pound exchange rate looked to end the week’s European session above the key level of 0.88, after a week of strong Eurozone ecostats as well as rising speculation about the mid to long-term European Central Bank (ECB) policy outlook.

The Pound outlook has fallen as the latest UK ecostats have indicated Britain’s economy could slow in the second half of 2017. Lower business confidence amid the Brexit process is weighing on investment in manufacturing and industrial production.

Sterling could recover next week if Britain’s May wage growth results impress traders, but if they fall short of expectations the Pound could see yet another week of losses.

[Previously updated 12:54 BST 07/07/2017]

Market hopes for the Bank of England (BoE) to tighten monetary policy in the foreseeable future have been dampened by a slew of underwhelming UK ecostats over the last week.

As well as disappointing PMIs earlier in the week, Friday’s UK trade, manufacturing, industrial production and construction output stats from May all missed the mark.

The disappointing datasets indicated that the Pound’s lower value since the Brexit vote last year was not helping to make exports more competitive. Confidence in production was down too, due to Brexit and political uncertainties.

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

Despite dovish comments from European Central Bank (ECB) officials in the past week, Euro Pound investors continue to speculate on ECB policy adjustments, keeping the Euro in demand. The shared currency was supported further by news of an EU-Japan trade deal.

EUR GBP began the week trending in the region of 0.8770. The pair trended relatively flatly for most of the week, but on Thursday afternoon advanced to a weekly high of 0.8813.

Euro (EUR) Demand Improves after ECB Minutes

After flat trade for most of the week, investors bought into the shared currency following the latest minutes report from the European Central Bank (ECB).

The ECB’s long-standing pledge to expand or extend the bank’s stimulus programs was officially dropped from the minutes report.

Despite hesitation among bank officials to hint at any possible unwinding of stimulus in the coming months, investors took the removal of the dovish message to be a hawkish sign regardless.

This led to German government bond yields and the Euro rising on Thursday afternoon.

Demand for the shared currency was also supported by news that the European Union and Japan had formally agreed to a free-trade deal. The news comes just ahead of the key G20 meeting at the end of the week.

The deal agreement marked the creation of the world’s biggest open economic area and has been seen as a counter-action to what is perceived as a rise in protectionism in major economies like the US. Japanese Prime Minister Shinzo Abe stated on Thursday;

‘Ahead of the G20 summit tomorrow, I believe Japan and the EU are demonstrating our strong political will to fly the flag for free trade against a shift toward protectionism,

It is a strong message to the world.’

European Council President Donald Tusk reflected this sentiment, adding ‘there is no protection in protectionism’. Tusk indicated that negotiating was likely to go smoothly from here on and hoped the treaty could go into effect in early 2019.

Pound (GBP) Slips as Markit’s PMIs Disappoint

Sterling has been unable to hold its ground much this week. Until Thursday, flat trade in EUR GBP was more to do with a lack of reasons for investors to buy the Euro than it was any notable Pound strength.

As a result, the Euro easily advanced against Sterling towards the end of Thursday’s European session.

The primary reason for Sterling’s weakness this week was Markit’s hat trick of disappointing UK PMIs from June.

The manufacturing PMI dropped from 56.3 to 54.3, the construction PMI fell from 56 to 54.8, and the services print slipped from 53.87 to a worse-than-expected 53.4.

The Office for National Statistics (ONS) noted in a new report on Thursday that rising inflation and slower wage growth led to British households’ disposable incomes falling by 2% in Q1 2017. According to Dominic Webber, head of economic well-being at ONS;

‘With prices rising and wage growth still modest, real household disposable income per head has now fallen at its fastest rate in over five years.’

This week’s data has indicated that Britain’s economy may not be resilient enough in the second half of 2017 to support any tighter policy from the Bank of England (BoE). As a result, investors have been hesitant to buy the Pound.

Euro Pound Forecast: German Inflation Update Next Week

While Friday will see the publication of a few influential datasets, the next big Euro Pound exchange rate movements are unlikely to come until next week.

Friday’s Eurozone data includes German, French and Spanish industrial production stats from May. Italian retail sales from May will be published too.

As for UK data, Friday will see the publication of May’s trade balance, manufacturing production and industrial production results.

Any notable comments from European Central Bank (ECB) or Bank of England (BoE) officials over the weekend have the opportunity to influence next week’s EUR GBP movement.

There may also be political developments, as the G20 Summit will be held over the weekend.

Next week’s most notable ecostats will be Germany’s May trade balance update, the Eurozone’s industrial production figures from May, Britain’s latest unemployment results and Germany’s final June inflation report.

As the strength of the Eurozone’s inflation is a key factor in the ECB policy outlook, German inflation data could be the most influential report next week for Euro Pound exchange rate traders.