Slowing Industrial Production Levels Trigger Euro to Pound Exchange Rate Decline
The Euro to Pound exchange rate (EUR/GBP) has fallen today, after the release of worse-than-expected Eurozone employment and industrial production figures.
In the former case, the Eurozone employment change for Q4 2017 has shown slower growth in employed persons, both on the quarter and the year.
Worse still were industrial production readings for January, which showed larger-than-expected month-on-month and year-on-year declines.
This was blamed on falling levels of energy production, which declined by -6.6% on the month and -10.4% on the year.
ECB’s Draghi Reduces Euro to Pound Rate with Dovish Economic Outlook
Another factor reducing demand for the Euro today has been European Central Bank (ECB) President Mario Draghi, who gave a cautious speech earlier on.
Mr Draghi stated that;
‘There is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2% over the medium term.
The performance of underlying inflation remains subdued compared with previous recoveries’.
Effectively, if Eurozone inflation doesn’t pick up then the ECB will be reluctant to reduce bond-buying, which means lower chances of near-term interest rate hikes.
Tentative Pound to Euro Gains Triggered by Reactions to Spring Statement
Today’s minimal GBP/EUR exchange rate rise is down to responses to Tuesday’s main UK economic event, the delivery of the spring statement.
This was very much a brief summary and forecast of UK economic performance, and as such did not contain explicit spending plans for the future.
The broad message was positive estimating falling inflation and slightly higher wage growth. On this basis, the Pound has made minor gains against the Euro today.
Euro to Pound Exchange Rate Forecast: Is EUR/GBP Turbulence ahead on ECB Speeches?
Following on from ECB President Mario Draghi’s earlier remarks, the Euro to Pound exchange rate could be influenced by additional comments from ECB officials today.
Policymakers Vitor Constancio and Benoit Coeure will be speaking this morning and this afternoon, and both may touch on ECB monetary policy plans.
If both men are more hawkish than Draghi then the Euro could appreciate, although as Draghi is ECB President his outlook could dominate trader considerations.
The week’s other major Eurozone data will be 16th March’s inflation rate stats for February.
Finalised inflation levels are predicted to show a year-on-year slowdown, although a month-on-month improvement from -0.9% to 0.2% has also been forecast.
Annual figures are usually the most high-impact, so the Euro could decline against the Pound if these predictions prove accurate.
Sticking with inflation rate figures, the UK readings for February will be out on 20th March.
As a potential early indicator of OBR forecasts, year-on-year inflation is tipped to have slowed in February – this outcome could boost Pound demand.
While slowing inflation might reduce the odds of an immediate Bank of England (BoE) interest rate decision, it would improve conditions for UK households.
If UK earnings levels are reported higher on 21st March, the Pound could appreciate further because it would mean that earnings are catching up with inflation.