The Euro has remained in high demand against the Pound on Thursday afternoon, advancing by around 0.4% in the pairing.
This improvement in the EUR/GBP exchange rate follows news that the European Central Bank (ECB) could be considering tighter monetary policy.
The ECB’s latest minutes suggest that the bank is considering a change of outlook in 2018, which may include tapering quantitative easing (QE).
Euro trader confidence has increased substantially on the news, so in addition to rising against the Pound, the Euro has also advanced against the US Dollar.
(First published 11th January, 2018)
Pair of Strong German Stats Push EUR/GBP Exchange Rate Higher
The Euro has made a slight advance against the Pound today, following the release of two supportive German ecostats.
German GDP growth in 2017 has been reported higher, from 1.9% previously to 2.2% last year.
While the reading didn’t hit 2.4% as some traders forecast, it has still been the strongest growth rate seen in 6 years.
The Euro didn’t see a universal rally on the GDP news, but this was still enough to improve the EUR/GBP exchange rate.
Another piece of good news has been that the German government’s budget surplus has also grown, from 0.8% to 2.2% in 2017.
There are concerns that the German government is saving too much, but among world governments with budget deficits, this issue has been largely ignored.
Giving a positive outlook based on the previous growth readings, ING economist Carsten Brzeski said;
‘[This was] a strong performance by an economy firing on all cylinders.
The same fundamentals which have supported growth in 2016 and 2017 should still be in place in 2018’.
Limited UK Data sees GBP/EUR Exchange Rate Decline on Brexit Concerns
In a recurrent situation, the Pound has fallen against the Euro today because of worries about the Brexit process.
Fears of a ‘Minister for No Deal’ being appointed may have passed, but a recent report commissioned by Sadiq Khan has brought Brexit fears back to the forefront.
The report by Cambridge Econometrics shows that in the worst cases, the UK could lose hundreds of thousands of jobs and almost £50bn in investment by 2030.
As Mayor of London, Mr Khan has taken warned about the dangers of a hard Brexit, where the UK leaves the EU without a transitional agreement or trade deal;
‘The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards.”
Euro to Pound Exchange Rate Forecast: Volatility ahead on Inflation Stats
The Euro and Pound could see significant movement in the week ahead, when Eurozone and UK inflation rate figures come out.
The Eurozone stats are out on 17th January and the expectation is for a reduction in the finalised reading for December, from 1.5% to 1.4%.
While a minor dip, such a result could still lower confidence in the Euro and trigger a EUR/GBP exchange rate decline.
If inflation is moving away from the European Central Bank’s (ECB) 2% target, this reduces the pressure to consider raising interest rates in 2018.
Traders have been long awaiting an ECB rate hike since the bank dropped rates to 0% in March 2016.
The UK’s inflation data will be out a day earlier, on 16th January.
UK inflation is currently above the Bank of England’s (BoE) 2% target, but the BoE is reluctant to raise interest rates under current conditions.
This is down to inflation exceeding the rate of wage growth, which means that real incomes are being constrained.
If interest rates were raised now, households in high levels of debt would face higher repayment costs, so the move would be more harmful than beneficial.
If UK inflation falls as forecast next week the Pound could appreciate because this might reduce the current national wage squeeze.