Euro to Pound Exchange Rate Continues to Edge Lower Despite Pound Weakness
As investors have little reason to believe the European Central Bank (ECB) will be taking a more hawkish tone on Eurozone monetary policy any time soon, the Euro to Pound (EUR/GBP) exchange rate has slipped more easily.
Despite falling Bank of England (BoE) interest rate hike bets, the Pound (GBP) has pushed EUR/GBP slightly lower this week – from the opening level of 0.8777 to near this week’s lows of 0.8740.
Sterling demand has been limited though, so EUR/GBP’s losses have been minimal. EUR/GBP is still well above last week’s levels. At the beginning of last week, EUR/GBP briefly touched on a 10-month-low of 0.8627.
The Euro (EUR) has been largely unappealing so far this week, as Eurozone business confidence stats have fallen short of forecasts.
This has indicated to investors that the Eurozone’s economy is slowing more than expected from the strong growth it saw in 2017.
Euro (EUR) Exchange Rates Unappealing as Business Confidence Falls Short
Even more hawkish analysts have become doubtful that the European Central Bank (ECB) will be pressured into tightening monetary policy considerably before late-2019.
The latest Eurozone data has largely indicated that the Eurozone’s economy has cooled from the strong growth rates seen in 2017.
While Monday’s Eurozone PMI projections for April were slightly better than expected in major economies like France and Germany, they still generally indicated that growth was slowing.
On top of that, Tuesday’s business confidence data from France, Italy and Germany largely disappointed.
Slowing business confidence indicated further that the bullishness surrounding the Eurozone economy in 2017 and early 2018 was beginning to fade.
According to Antje Praefcke, analyst from Commerzbank AG:
‘The market seems to realize slowly that the recently rather disappointing economic data points toward a painfully slow exit from expansionary monetary policy,
The growth argument could crumble, and with it the Euro.’
Pound (GBP) Exchange Rate Edges Higher on Hopes of Major Pharmaceutical Buyout
Despite a lack of particularly impressive UK data in recent sessions, the Pound advanced slightly on Tuesday thanks to market hopes that Japan’s Takeda Pharmaceutical could buy out a London-listed company, Shire.
The large £44b bid for the purchase would inevitably give the Pound a boost if it went through, simply due to cash inflows.
On top of this, stories about investment in the UK remaining strong despite Brexit uncertainties have made investors more optimistic about the future of UK businesses even outside the EU.
Still, Sterling’s gains have been highly limited. Tuesday’s UK ecostats were mixed, with public sector net borrowing beating expectations but CBI’s business optimism and industrial trends orders disappointing.
Euro to Pound (EUR/GBP) Forecast: European Central Bank (ECB) in Focus
The Euro to Pound (EUR/GBP) exchange rate looks to continue its gradual downside trajectory throughout Wednesday’s session, unless there are surprising political developments.
Sterling investors are still on the lookout for major Brexit developments, which could certainly cause some currency movement.
Overall though, in the absence of any shocks EUR/GBP traders are highly anticipating Thursday’s European Central Bank (ECB) policy decision.
The bank is not expected to make any changes to Eurozone monetary policy, but any perceived shift in tone from the bank would definitely have an effect on Euro trade.
For example, if the bank is more cautious about the Eurozone inflation or economic outlook than expected, EUR/GBP is likely to see further losses towards the end of the week.
Amid underwhelming Eurozone data lately, the ECB is unlikely to be notable hawkish either.
Lastly, a slew of key Eurozone and UK data will be published on Friday, which could of course cause some late-week movement in the Euro to Pound (EUR/GBP) exchange rate.