The outlook of the Pound (GBP) has remained softer today in the wake of the Bank of England’s (BoE) more dovish policy meeting, while the Euro (EUR) has been bolstered by the latest German inflationary gauge.
Pound Sterling (GBP) Dented as Dovish BoE Disappoints Market Expectations
Some of the recent buoyance of the Euro (EUR) diminished on Thursday as members of the European Central Bank (ECB) governing council commented on the possibility of a further expansion to the current quantitative easing program. While this ran counter to the more limited nature of the loosening measures announced at last week’s ECB policy meeting, the generally dovish tone helped to push the single currency down across the board.
After the UK’s trade deficit was found to have widened by a greater degree than anticipated the Pound (GBP) slumped substantially as the Bank of England (BoE) disappointed markets. Policymakers voted 8-1 to leave interest rates unchanged at 0.50%, with the accompanying meeting minutes offering no indication that a near-term rate hike was in consideration. Pundits had been hoping that the more hawkish direction of the Fed might spur the BoE into beginning to tighten monetary policy sooner, however negative global headwinds and weak domestic inflation continue to weigh on the outlook of the central bank.
Solid German Inflation and Weak UK Construction Keep EUR/GBP Exchange Rate Bullish Today
The common currency has been able to take advantage of Sterling softness today, supported by the finalised German Consumer Price Index meeting earlier forecasts. With the inflationary outlook of the Eurozone’s powerhouse economy appearing a little more positive this helped to shore up demand for the Euro once more.
Weaker-than-expected UK Construction Output in October has not encouraged any resurgence in Pound strength, as output failed to rise as far as traders had anticipated to clock in at 0.2% rather than 1.0%. While the BoE/GfK 12-month inflation forecast showed no particular change on the month in November, remaining at an optimistic 2.0%, the EUR/GBP exchange rate has continued to advance strongly.
EUR/GBP Exchange Rate Forecast: US Retail Sales and Confidence Index Predicted to Prompt Euro Volatility
This afternoon’s US Advance Retail Sales and University of Michigan Confidence Index are expected to show improvement, adding further fuel to the likelihood that the Fed will opt to raise interest rates next week, potentially turning the Euro bearish. Nevertheless, the appeal of the Pound is not expected to pick up ahead of the weekend, with the EUR/GBP pairing likely to hold onto recent gains.
However, into next week the single currency should return to a lower trend as markets prepare for a Federal Open Market Committee (FOMC) take-off. As Eurozone Industrial Production is also forecast to have weakened on the year in October, suggesting that the currency union remains fragile, the Euro is likely to retreat against many of its rivals.
Current EUR, GBP Exchange Rates
At time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending higher in the range of 0.7248, while the Pound Sterling to Euro (GBP/EUR) pairing remained slumped around 1.3802.