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Euro Pound Exchange Rate Rallies as IMF Downgrades UK Growth Forecast

  • Euro Pound Exchange Rate Surges as IMF Downgrades UK Growth to 1.3% – Substantially lower than previous figure of 2.2%
  • ECB Stimulus Expectations Result in Fluctuating Euro – EUR gains on GBP but struggles Vs other peers.
  • UK Government Votes to Renew Trident Nuclear Deterrent for £31 Billion – Sterling slumped on spending implications.
  • EUR/GBP Forecast to Rally if ECB Keeps Rates on Hold

The Euro Pound exchange rate has trended fairly narrowly since the start of the week as the Pound’s rally subsided and murmurings of the European Central Bank (ECB) holding rates kept the Euro afloat.

Comments on Monday from Bank of England (BoE) Monetary Policy Committee member Martin Weale saw Sterling rally substantially. Weale stated that the case for near-term stimulus, specifically a rate cut, is far from clear cut at the moment.

Analysts surveyed in regards to this week’s ECB rate decision have inferred that they expect the central bank to adopt Mark Carney’s wait-and-see attitude in regards to stimulus.

The Euro Pound exchange rate traded at 0.8404 after rallying almost 0.75% during yesterday’s session.

Euro (EUR) Holds as IMF Downgrades Global Growth Outlook, ECB Looks Unlikely to Cut

Weaker-than-anticipated ecostats and the likelihood of the European Central Bank slashing rates had previously kept Euro demand low.

Other factors, such as the growing pile of bad debt that the Italian banks are wrestling with and the widening budget deficits of Spain and Portugal, have kept the post-Brexit cyclone of uncertainty alive and spinning, and in turn kept any Euro investment at a minimum.

Various groups have now came out to state that Eurozone and global growth as a whole has been, and will continue to be, damaged by the UK’s June 23rd vote to Brexit. Both the Eurogroup, a collection of the various finance ministers around Europe, and the International Monetary Fund have stated that growth prospects are markedly lower post-Brexit and the IMF has gone as far to lower actual growth outlook figures for the UK and EU for 2017.

However, analysts surveyed by reputable news organisation Bloomberg have all pointed towards the ECB holding steady at this week’s rate decision. In reaction to the lowered likelihood of stimulus, the Euro has been trending further upwards but still lacks any monumental appreciations due to the ongoing Brexit fallout.

Sterling (GBP) Flounders Spectacularly on Latest IMF Growth Forecast

What started off as a fairly bad day for the Pound finished a woeful one, as Sterling plummeted enthusiastically on Tuesday in response to the news that the International Monetary Fund downgraded the growth outlook for the UK.

The IMF slashed projected growth figures from 2.2% to 1.3% for 2017 and also lowered this year’s expected growth by 0.2 percentage points. In the full report, the organisation went on to list the Brexit as the major deciding factor for the downgrade:

‘The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies.

Had it not been for Brexit, the IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro-area performance offset disappointing US first-quarter growth.’

Earlier in the session, the Pound slid almost half a percentage point against most of the majors as the news broke that the British government would indeed renew its Trident nuclear deterrent to the tune of £31 billion. The Pound deprecated as a result of the massive public spending implications of the renewal, especially during one of the most tumultuous, politically and economically uncertain times that modern Britain has experienced.

Euro Pound Exchange Rate Set to Rally if ECB Holds Rates 

When it comes to European ecostats, all eyes will be focused on Thursday’s ECB rate decision.

Some analysts consider it unlikely that the European Central Bank will cut its benchmark rate, however as we have seen before, nothing can be taken for granted regarding central bank policy and the possibility the central bank may slash has kept Euro demand fairly muted.

The single currency will likely see a notable rally if the ECB elects to hold rates, conversely, if the ECB slashes, the Euro is likely to drop off.

Prior to this the UK’s latest employment figures could inspire some EUR GBP exchange rate movement.

Jobless claims are forecast to rise along with average weekly earnings and employment change. While forecasts are fairly optimistic given current circumstances, the Pound will likely fall on the deflating sentiment if the reports print overly negative. On the reverse, if the majority of the releases appear favourable, the Euro Pound exchange rate could dip.