Euro Pound Exchange Rate Struggles to Recover after Yesterday’s Dovish ECB
A dovish tone from the European Central Bank (ECB) made it harder for the Euro Pound (EUR/GBP) exchange rate to mount any notable recovery towards the end of the week. This is despite the Pound (GBP) being weakened by fresh Brexit concerns.
Persisting Euro (EUR) weakness has kept EUR/GBP tumbling in recent weeks. This week, EUR/GBP has once again shed around half a pence,
Since opening this week at the level of 0.8611, EUR/GBP has fallen and briefly touched on a yearly low of 0.8551. At the time of writing on Friday, EUR/GBP is trending in the region of 0.8561, just above those worst levels in over a year.
Next week will see the publication of more key Eurozone data, as well as the Bank of England’s (BoE) March policy decision. The Euro could mount a bigger recovery if upcoming data impresses.
Euro (EUR) Exchange Rates Fail to Find Strong Foothold as Eurozone Outlook Remains Mixed
Investors were hesitant to buy the Euro at the end of the week. With the Euro’s rivals the Pound and US Dollar (USD) seeing bigger movements, the Euro continued to be driven more by rival strength.
Recent Eurozone data and yesterday’s European Central Bank (ECB) policy decision did little to boost the Euro’s appeal.
The ECB actually took a fairly dovish tone in yesterday’s policy decision, announcing a frontloaded Pandemic Emergency Purchase Programme (PEPP) that will lead to Eurozone bond purchases ramping up.
The bank also said there was not yet any real chance of inflation rising beyond control in the Eurozone, meaning monetary policy would likely remain ultra loose for a long period of time.
The latest ECB news had little impact on the Euro outlook, but did limit the shared currency’s potential to recover against Sterling today.
Pound (GBP) Exchange Rate Rally Slows as Brexit Uncertainties Return
The Pound has been able to hold near its best levels in a year against the Euro, but its bullish movement slowed towards the end of the week.
Stronger than expected UK growth data and continued hopes for recovery from the coronavirus pandemic are keeping the Pound broadly appealing. However, today’s data also showed that Brexit is having a bigger impact on UK-EU trade than economists feared.
A shocking plummet in UK-EU trade activity after the UK split from EU rules in January has concerned experts. According to David Lowe, Partner at Gowling WLG:
‘The Cabinet Office points to data about truck movements claiming this shows Brexit has had no impact. But that is misleading – a lot of trucks are going out of the UK empty (having brought in imports).
Truck movements is not relevant to what the actual exports are. The government needs to stop denying the obvious and instead focus on how EU exports can recover.’
Euro Pound (EUR/GBP) Exchange Rate Awaits Bank of England (BoE) Policy Decision
Next week will see the publication of more key Eurozone data.
German and Eurozone economic sentiment data from ZEW is due on Tuesday, with Eurozone inflation following on Wednesday and trade balance data on Thursday.
However, possibly the biggest event of the week will be Thursday’s March policy decision from the Bank of England (BoE).
The BoE is not expected to make any changes to monetary policy, but the tone the bank takes on the coronavirus pandemic and potentially on UK-EU trade issues could cause a shift in the Pound outlook.
If the BoE is more cautious than expected about the potential impact of the pandemic or trade tensions, the Pound could weaken and EUR/GBP could recover more easily.
On the other hand, an unexpectedly optimistic BoE could help the Pound to extend its recent rally, and the Euro Pound (EUR/GBP) exchange rate could sink deeper into yearly lows.