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Euro Pound Sterling (EUR/GBP) Exchange Rate Struggles to Extend Gains After Downgraded ECB Growth Forecasts

Euro Pound Sterling (EUR/GBP) Exchange Rate Softens as ECB Boost Fades

As the initial market reaction to the European Central Bank’s (ECB) October policy announcement faded this left the Euro to Pound Sterling (EUR/GBP) exchange rate trending in a narrow range.

While the ECB still looks set to wind down its quantitative easing programme by the end of the year concerns over the outlook of the Eurozone economy remain.

The latest ECB survey of professional forecasters added to that sense this morning, as the growth and inflation forecasts for both 2018 and 2019 were revised lower.

This gave investors incentive to sell out of the Euro (EUR) ahead of the weekend, undermining the odds of the central bank following through with an interest rate hike in summer 2019.

With the Italian government still refusing to rewrite its 2019 budget proposal, meanwhile, political concerns continue to weigh on the outlook of the Eurozone.

Brexit Worries Weigh Down Pound Sterling (GBP) Ahead of UK Budget

Uncertainty over Brexit and domestic politics have kept Pound Sterling (GBP) under pressure over the course of the week.

Further volatility is likely for GBP exchange rates on Monday as Chancellor of the Exchequer Philip Hammond presents his latest budget.

Although there are hopes that Hammond will announce fresh spending plans and usher in the ‘end of austerity’, as promised by the prime minister, market scepticism remains.

Unless Hammond delivers an especially optimistic budget the mood towards the Pound is likely to sour once again.

Building anticipation ahead of Thursday’s Bank of England (BoE) policy announcement could also benefit the EUR/GBP exchange rate over the coming days.

As analysts at Nomura noted:

‘We do not see much need for the Bank of England (BoE) to alter its policy guidance in November. Brexit remains a sizeable risk, and while economic growth could surprise on the upside in Q3, weaker global growth and recent market moves could be negative further out. We see the Bank sticking with a similar inflation profile as in August.’

Stronger Third Quarter Eurozone Growth Forecast to Drive Euro (EUR) Exchange Rate Gains

The EUR/GBP exchange rate could find an additional boost on Tuesday if the third quarter Eurozone gross domestic product figures impress.

An uptick in growth would go some way towards encouraging greater ECB hawkishness, in spite of the more cautious long-term GDP forecasts.

Evidence that the Eurozone economy is recovering some of the momentum lost since the start of 2018 should improve the appeal of the single currency.

While the global growth outlook remains troubling any signs of Eurozone resilience are likely to bolster the spirits of investors.

On the other hand, the release of Italy’s third quarter growth data could raise fresh concerns over its budget spat with the European Commission.

Thus, if Italian growth underwhelms Euro exchange rates may come under pressure as worries over the country’s economic future grow.