Hawkish FOMC Minutes Weigh on Single Currency (EUR) Outlook Today
Following a more hawkish than expected set of minutes from the October Federal Open Market Committee (FOMC) meeting the Euro (EUR) has been on a general downtrend today. The prospect of an imminent divergence of policy between the Fed and the European Central Bank (ECB) has not been encouraging investors this morning.
While Wednesday looks to be a relatively quiet day for economic data in both the UK and Eurozone the EUR/GBP exchange rate has been making bullish gains, as increasing market confidence sees demand for the common currency rise.
Negative UK Inflation Prompts Fears of Deflation, Pound (GBP) Softer
Traders were not initially sure how to react to the latest UK Consumer Price Index data yesterday, as a positive uptick in the monthly inflation rate was contrasted by continued negative inflation on the year in October. Optimism was not encouraged as this marked the first occasion on which the annual CPI report, created in 1996, has shown two consecutive negative readings. Offering little incentive to the Bank of England (BoE) to speed up its plans to begin tightening monetary policy, the figure also gave rise to fresh fears of potential deflation within the domestic economy.
The German ZEW Economic Sentiment Survey saw a marked increase in business confidence, rising from 1.9 to 10.4 in November, to suggest that the Eurozone’s powerhouse economy remained relatively untouched by continuing developments in the Volkswagen emissions scandal. Nevertheless, the corresponding Eurozone Index showed a decline in sentiment as investors remained concerned by the slow progression of Greece’s third bailout and the recent overturning of Portugal’s centre-right government by an anti-austerity coalition of left-wing parties. With demand for the Euro (EUR) still muted following Friday’s terror attacks in Paris, this left the EUR/GBP exchange rate on a persistent downtrend throughout the day.
Euro Currency News: Increasing Market Optimism Bolsters EUR Conversion Rates Today
Sentiment towards the common currency has begun to improve on Wednesday morning, particularly as the US Dollar (USD) turns bearish in anticipation of the latest Federal Open Market Committee (FOMC) meeting minutes. Although markets remain generally more cautious at this juncture the Euro is regaining some of its lost ground against rivals, despite the persistent threat of fresh quantitative easing from the European Central Bank (ECB) in December.
BoE Deputy Governor Ben Broadbent has cautioned today against placing too much importance on inflation target forecasts and the market’s obsessive focus on the date of the central bank’s interest rate take-off. Emphasising the volatility of the economic landscape, Broadbent did not offer any particular indication as to when a rate hike might be expected. This tone did little to bolster the Pound (GBP), leaving the EUR/GBP exchange rate on a strong uptrend.
EUR/GBP Exchange Rate Forecast: Pound Predicted to Decline with Weakened UK Retail Sales
UK Retail Sakes due for release tomorrow are unlikely to offer a rallying point for Sterling, with forecasts pointing to a decrease in consumer demand on the year from 5.9% to 3.9%. As a weaker showing would suggest that areas of the domestic economy remain in a slowing state the Pound is likely to retreat further on the back of this report.
Friday’s Eurozone Consumer Confidence Index is anticipated to show a slight improvement from -7.7 to -7.5, which could allow the EUR/GBP exchange rate to make further gains ahead of the weekend. However, with ECB President Mario Draghi due to speak again on the same day the common currency could equally be weighed down by further talk of an expanded quantitative easing program.
Current EUR, GBP Exchange Rates
At time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was climbing in the range of 0.7011, while the Pound Sterling to Euro (GBP/EUR) pairing slumped in the region of 1.4258.