Euro (EUR) Exchange Rate Softens ahead of Eurozone Data Today
Although expectations are for a significant improvement in the latest Eurozone Industrial Production figures the Euro to Pound Sterling (EUR/GBP) exchange rate has been trending lower at 0.7747 on Monday morning.
Despite an initially uncertain market reaction to the latest European Central Bank (ECB) policy meeting the Euro to Pound Sterling (EUR/GBP) exchange rate failed to hold onto gains ahead of the weekend.
ECB Policy Meeting and Draghi Comments Prompted Euro (EUR) Volatility
It was something of a turbulent week for the Euro (EUR) as markets focused on the March policy meeting of the European Central Bank (ECB). There had been concerns that ECB President Mario Draghi would fail to deliver on dovish rhetoric following December’s disappointment, although these worries ultimately proved to be unfounded.
An expansion of the central bank’s quantitative easing program and cuts to both the fixed rate and the deposit rate were announced on Thursday, prompting a sharp slump in the Euro. However, Draghi followed this up by remarking that he did not see interest rates having to go any lower, a comment that saw the single currency rapidly reverse its losses.
Friday’s German Consumer Price Index helped to weaken the Euro once again as markets continued to revaluate their approach to the ECB’s latest raft of measures. With the Eurozone’s powerhouse economy recording inflationary pressure of 0.0% on the year in February the outlook of the currency union remained generally discouraging.
Pound Sterling (GBP) Exchange Rate Rallied on Better-than-Forecast Construction Data
Confidence in Pound Sterling (GBP) wavered somewhat ahead of the weekend as the UK’s trade data proved something of a mixed bag. A downwards revision of December’s visible trade deficit from -9.9 billion to -10.4 billion Pounds was followed up by a minor narrowing to -10.2 billion in January. Overall this seemed to suggest that the UK was still struggling in its attempts to narrow the trade gap, with imports continuing to fast outpace exports.
The Pound was shored up somewhat by the domestic Construction Output report, however, as it demonstrated a smaller contraction in output than investors had been anticipating. This eased at least some concerns over the strength of the domestic construction industry, prompting the Euro to Pound Sterling (EUR/GBP) exchange rate to continue trending lower.
EUR/GBP Exchange Rate Forecast: Pound Predicted to Cede Gains on Budget and BoE Meeting
In the coming week the ongoing ‘Brexit’ debate is likely to prove a persistent drag on the Pound, particularly as the Bank of England (BoE) will be meeting to discuss monetary policy. If members of the Monetary Policy Committee (MPC) continue to take a more dovish outlook and emphasise the likelihood that interest rates will not be raised for some time to come then the EUR/GBP exchange rate can be expected to strengthen.
Following Friday’s trade data all eyes will be on Chancellor of the Exchequer George Osborne’s budget speech on Wednesday, with the Pound likely to take further cues from the Chancellor’s tone and the details of any particularly major alterations in policy.
Demand for the Euro, meanwhile, is expected to remain muted in the wake of the ECB’s significant monetary loosening measures. However, as many pundits continue to doubt the central bank’s abilities and the ultimate impact of this expansion the single currency may yet rally again.
Current EUR, GBP Exchange Rates
At the time of writing, the Euro to Pound Sterling (EUR/GBP) exchange rate was slumped in the region of 0.7770, while the Pound Sterling to Euro (GBP/EUR) pairing was trending higher at 1.2869.