- Euro Pound Exchange Rate Falls Back to 0.84 – Brief jump to 0.85 is cut short
- Investors Sell Euro from Highs – Uncertainty remains over French elections
- ECB Cautious – Investors disappointed by dovish Draghi
- UK Growth Disappoints – EUR GBP strengthens as UK stats disappoint
- Forecast: PMI Due Next Week – April PMIs for the Eurozone and UK
Euro Pound Exchange Rate Ends Week Near 0.84
Despite disappointing UK data throughout the week, a dovish European Central Bank (ECB) and a slip in polls for Emmanuel Macron saw the Euro Pound exchange rate unable to hold near its weekly highs on Friday.
Thursday’s ECB news was the primary cause of the Euro’s drop in demand later in the week, but news that Macron’s strong lead in opinion polls had slipped slightly also weighed on the shared currency.
According to a Friday poll from Presitrack, Macron’s lead dropped to 59% against anti-EU Le Pen’s 41%.
However, Euro sentiment was still generally strong. Friday’s Eurozone inflation stats beat expectations of 1.8%, rising from 1.5% to 1.9% year-on-year in April.
[Previously updated 13:01 BST 28/04/2017]
Demand for the Euro Pound exchange rate improved on Friday, as Britain’s latest growth stats concerned investors and left the Euro comparatively appealing. EUR GBP continued to trend in the region of 0.84.
UK growth was forecast to improve from 1.9% to 2.2% year-on-year in Q1 2017, but only gained to 2.1%. Quarter-on-quarter growth slowed from 0.7% to 0.3% rather than to 0.4% as forecast.
This was the primary reason for EUR GBP gains on Friday, though the day’s Eurozone data also impressed.
[Previously updated 16:50 BST 27/04/2017]
No Change in ECB Policy, Euro Pound Continues to Slip
Thursday afternoon’s European Central Bank (ECB) press conference left the Euro Pound exchange rate weaker. ECB President Mario Draghi took a familiarly cautious tone, weighing on the bullish mood in Eurozone markets this week.
Draghi stated that while Eurozone growth was solid and that deflation risks had largely vanished, core inflation in the bloc was still subdued overall and there remained downside risks to growth. All policy was left frozen and there was no indication that the bank’s quantitative easing (QE) program would go anywhere any time soon.
Analysts had suggested that Draghi was unlikely to become more hawkish due to the bank’s tendency to avoid political topics – and they were right.
Draghi was very careful to tiptoe around the French election, stating the election had not affected the bank’s outlook. Overall, nothing much had changed from the previous meeting but this was enough to put a dampener on the previously bullish Euro.
[Previously updated 13:01 BST 27/04/2017]
Demand for the Euro was little influenced by Thursday’s European Central Bank (ECB) decision.
The ECB decided, unsurprisingly, to leave Eurozone monetary policy frozen at their lightest levels on record. So far there has been no indication that the bank’s quantitative easing package could be tapered back slightly.
Some investors are hoping that ECB President Draghi will take a slightly hawkish stance in the afternoon’s press conference. However, analysts have argued that Draghi is more likely to be cautious right in the middle of the French Presidential elections.
[Published 06:00 BST 27/04/2017]
After strong Euro performance on Monday and Tuesday, markets calmed down on Wednesday. Some investors sold the Euro Pound exchange rate from its highs in profit-taking and the pair could continue falling if Thursday’s ECB meeting disappoints.
EUR GBP began this week trading at the level of 0.83 but surged when markets opened. On Wednesday morning the pair hit its best 0.85 levels in over two weeks – but slipped back to 0.84 by the end of the day.
Euro (EUR) Sold Slightly from French Election Highs
Markets calmed considerably on Wednesday amid a lack of fresh influential data from the Eurozone or Britain.
Investors took the opportunity to sell the Euro in a bout of profit-taking, from the highs it reached from rallying throughout Monday and Tuesday.
Wednesday did see the publication of some data from the Eurozone, but it was low-influence and the Euro’s movement was largely unaffected.
The Netherlands’ latest business confidence report improved from 7.8 to 8.3 despite forecasts that it could drop, while French consumer confidence remained at 100 in the April print.
Euro investors remain optimistic about the Eurozone outlook following this week’s news that pro-EU centrist Emmanuel Macron had performed well in the first round of the French Presidential elections.
Macron was projected to win the first round by a slim margin according to opinion polls leading up to the election. As polls were largely accurate, investors are optimistically hoping second round polls will also be accurate.
In the latest second round polls, Macron has been projected to beat his anti-EU opponent Marine Le Pen 61% to 39%.
Pound (GBP) Recovers from Lows
Despite a lack of strong UK data so far this week and a lack of any fresh supportive news on Wednesday, the Pound took Wednesday’s quieter Euro trade as an opportunity to advance.
According to Chris Saint, analyst from Hargreaves Lansdown;
‘Sterling has bounced off a two-week low of €1.1718 versus the Euro to trade around half a cent higher at €1.1771 by noon, although Euro strength is generally still being underpinned by ongoing expectations that Emmanuel Macron will defeat Eurosceptic candidate Marine Le Pen in the second round of the French presidential elections on 7 May.’
Lasting optimism about Britain’s upcoming general election, set for the 8th of June, has left investors more optimistic on the Pound overall.
UK Prime Minister Theresa May’s Conservative party enjoys a strong polling lead over its opponents, adding to market hopes that a strong Conservative majority in Parliament will make for a smoother Brexit process.
Euro Pound Forecast: European Central Bank Meeting in Focus
Thursday will see the European Central Bank (ECB) hold its anticipated April monetary policy decision.
The ECB is not expected to make any changes to Eurozone monetary policy. However, due to recent optimistic Eurozone ecostats as well as market hopes of a pro-EU outcome to the French Presidential elections, some speculate the ECB could take a more hawkish tone.
A hawkish ECB, particularly hawkishness from its President Mario Draghi, would give the Euro a significant late-week boost and allow it to increase its gains against the Pound.
The ECB will meet at around midday, followed by a press conference in the early afternoon. Most of the potential market movement is likely to be reaction to comments made at the press conference. A dovish tone may disappoint traders and leave EUR GBP weaker towards the end of the week.
Other key Eurozone data will be published on Thursday, including Eurozone business confidence data from April and Germany’s preliminary April inflation data.
German consumer prices are expected worsen from 0.2% to -0.1% month-on-month but improve from 1.6% to 1.9% year-on-year. If German inflation beats expectations this could improve the pressure on the ECB to tighten monetary policy.
The ECB is likely to avoid making any kind of political comments however, and may avoid the subject of French elections.
It’s also worth noting that there is still a week and a half until the second round of the French Presidential election, meaning it’s still possible for anti-EU Marine Le Pen to gather more support and close the gap between herself and frontrunner Macron.
As for the Pound, the British currency is unlikely to see much shift in movement until Friday, which sees the publication of Britain’s preliminary Q1 2017 Gross Domestic Product (GDP) figures.
Q1 growth projections will also be published for France and Spain on Friday, as well as a Eurozone inflation projection for April. As a result, there’s plenty of movement potential for the Euro Pound exchange rate towards the end of the week.