The Euro to Pound Sterling (EUR/GBP) exchange rate has strengthened again as UK investors remain wary of upcoming central bank and budget decisions.
European Central Bank (ECB) Stimulus Package Unable to Change Pound’s (GBP) Weakness
Last week’s European Central Bank (ECB) announcements, made to inspire weakness in the Euro and stimulate the Eurozone economy, seem unable to encourage much strength in the depressed Pound. The EUR/GBP pair has risen 0.80% and is trending in the region of 0.7840.
Despite comments from ECB Vice President Vitor Constancio that further adjustments to Eurozone policy were still possible, the Euro’s gradually growing weakness has not yet reached Sterling’s levels.
The Pound’s weakness is attributed to ‘Brexit’ talks dominating the news last week, as well as analyst and investor anxiety towards this week’s upcoming Bank of England (BoE) and Budget events. Analysts currently expect a lack of optimism from the central bank, predicting bearish behaviour and subsequently bearish currency movements.
Positive Eurozone data may have contributed to the shared currency’s strength over the Pound. Industrial production data released yesterday beat out forecasts by over 1% and this morning’s Eurozone employment data implied an annual increase in employment levels.
A lack of vital UK data in the last week has seen Sterling uninspired to move, leaving it at the mercy of current investor worries.
Bank of England (BoE) Rate-Cut Chances Climb, Investors Grow Dovish
Bloomberg reports that the prospects for growth and inflation within UK have decreased considerably since September 2015. Estimates suggest that there is a 23% chance that the BoE will cut the national interest rate within 2016, and this chance seems to be rising quickly.
While 23% may not be very high, it has increased substantially from the 10% chance estimated just a month ago. This is likely a large factor in the Pound’s plummet today.
The bearish outlook is thought to have been influenced by Bank of England Governor Mark Carney’s comment that the MPC is capable of further easing efforts.
This tangents into Carney’s comments last week that a ‘Brexit’ result from the EU referendum would be the greatest risk to the UK’s economy. Some analysts predict that such an event could have potential to turn the central bank even further towards easing.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Pound Expected to be Influenced by Bank of England (BoE), Budget Announcements
The Pound’s current weak-streak could finally come to an end in one way or another this week as Chancellor of the Exchequer George Osborne is set to discuss UK’s 2016 budget tomorrow, followed by the BoE’s national interest rate decision on Thursday.
Key unemployment and other employment data is also due for release tomorrow. While unemployment levels are expected to remain around their current level, a higher or lower-than-forecast release could easily cause stronger downward or upward Sterling influence.
The Bank of England is currently expected to keep the national interest rate at a steady 0.50%, though it may also confirm rising fears that the interest rate could be cut later in the year. Such an announcement would likely result in a strong downtrend from GBP.
The BoE meeting minutes may also carry some idea of what policies may come into play in the event of a ‘Brexit’ in June. Bloomberg polls suggested that leaving the EU would have a high 40% chance of causing a UK recession due to harmed economic confidence.
The Eurozone has comparatively less vital releases and the Euro is expected to begin settling after last week’s shocking ECB announcements. There is, however, Eurozone CPI data due for release on Thursday which could cause fluctuations if it defies expectations to remain steady.
At this point any strong data could influence the Pound and reduce investors’ wariness of the currency. It is likely that the EUR/GBP pairing will experience movement this week mostly in relation to UK announcements and any new forecasts for the British economy going forward.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7840 while the Pound Sterling to Euro (GBP/EUR) exchange rate trends in the region of 1.2754.