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Euro Pound Sterling (EUR/GBP) Exchange Rate Edges Up as BoE Downgrades Q2 2019 Forecasts

Euro Pound (EUR/GBP) Exchange Rate Rises as BoE Leaves Interest Rates Unchanged

The Euro Pound Sterling (EUR/GBP) exchange rate rose and the pairing is currently trading at an inter-bank rate of £0.8912.

On Thursday the Bank of England (BoE) left interest rates unchanged at 0.75%.

Meanwhile, the minutes revealed the bank downgraded its growth forecasts for the second quarter, from 0.2% growth to 0%.

The BoE stated that the economic outlook depended on the UK’s withdrawal from the European Union.

In the minutes, the bank stated:

‘The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.’

This likely weighed on the Pound as markets were expecting the bank to indicate an interest hike would be the next move.

The BoE not only highlighted Brexit as a risk to growth, but trade tensions, with the minutes stating:

‘Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen.

‘Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the Sterling exchange rate.’

Sterling (GBP) Falls as UK on Track for Weak Second Quarter

Cooler weather in May likely caused the largest fall in UK retail sales this year as shoppers put off purchasing summer clothes.

The volume of retail sales contracted by -0.5% in May following April’s downwardly revised fall of -0.1%.

Meanwhile, the Office for National Statistics (ONS) revealed that clothing sales suffered from its ninth consecutive monthly contraction.

This added to further signs that the economy is on track for a weak second quarter which likely weighed on the Pound.

Euro (EUR) Rises as Italy Proposes Plans to Avoid Disciplinary Action

Meanwhile, the Euro rose against Sterling as reports suggest the Italian government proposes to use €5.2 billion to avoid disciplinary action.

Il Sole 24 Ore said on Thursday that the government is expected to use this to improve its 2019 budget position.

The newspaper reported that the improvements consisted of savings on predicted expenditure of around €2 billion and higher-than-forecast revenues of €3.2 billion.

This likely provided the single currency with an upswing of support.

Euro Pound Outlook: Will Better than Expected German Manufacturing Buoy EUR?

Looking ahead to Friday, the Euro (EUR) could edge up against the Pound (GBP) following the release of the German manufacturing PMI.

If data reveals that the flash German manufacturing PMI rises higher than forecast in June, the single currency could rally.

Meanwhile, the flash Eurozone Markit PMI composite could offset any gains from a stronger German manufacturing sector.

If growth in the manufacturing and services sectors does not expand as high as forecast, it could cause the Euro Pound (EUR/GBP) exchange rate to slide.