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Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Dive after ECB Cuts Economic Outlook, Expands Stimulus

‘Shared Currency’ (EUR) Exchange Rate Forecast to Decline against the UK Pound (GBP) despite Positive Eurozone Retail Sales

The Euro to Pound Sterling (EUR/GBP) exchange rate declined by around -0.5% on Thursday afternoon.

In the early stages of the European session the single currency advanced versus many of its peers thanks to mostly positive results from domestic data publications. Of particular significance was Eurozone Retail Sales which bettered the median market projection of 2.0% growth on the year, with July’s actual result advancing by 2.7%. With the exception of France, Euro-area Services and Composite PMIs all eclipsed expectations.

The European Central Bank (ECB) kept interest rates unchanged, a move predicted by most analysts. However, the accompanying statement from President Mario Draghi was particularly dovish and caused the shared currency to plunge across the board. The ECB cut outlook for growth and inflation through to 2017 as officials see consumer prices will remain weak for some time to come. In addition, Draghi announced a revamp of the quantitative-easing program that allows officials to purchase higher proportions of each Euro member’s debt.

‘Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September projections,’ Draghi told reporters. ‘A cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council’s monetary policy decisions.’

The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7287.

Pound Sterling (GBP) Exchange Rate Predicted to Hold Gains against the ‘Single Currency’ (EUR) despite Slower-than-Expected UK Services Growth

Thursday’s European session has seen the Pound weaken versus the majority of its most traded currency peers. Sterling’s downtrend is the result of missed estimates for services growth in August, a particularly disappointing result given that the services sector accounts for a significant proportion of British Gross Domestic Product. The Services PMI was forecast to advance from 57.4 to 57.7 in August, but the actual result dropped to 55.6. Combined with subdued growth from the British manufacturing and construction sectors, it was little surprising to see the Composite PMI drop from 56.6 to 55.1 in August.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply stated; ‘The services sector left little to get excited about as the growth rate of new business was reported as the lowest for 28 months and the rate of overall activity growth the softest for 27 months. That said, services output has now risen for 32 consecutive months, and backlogs continued to rise. Staffing levels were higher and included some apprenticeships when compared to last month’s disappointing results, but concerns around the reality of the costs of the living wage were highlighted by respondents in a sector reliant on constant, high-quality, trained staff.’

The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7274 during Thursday’s European session.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Hold Losses ahead of German Factory Orders

With an absence of further data publications pertaining to either the UK or Europe to drive changes, and with sentiment towards the ECB flagging, the Euro to Pound Sterling (EUR/GBP) exchange rate is likely to hold losses for the remainder of Thursday’s European session.

Friday is likely to see EUR/GBP volatility, however, with the publication of German Factory Orders and the German Construction PMI. Eurozone and German Retail PMIs will also be of interest to those invested in the Euro. In terms of British data, however, the solitary New Car Registrations report is unlikely to provoke significant changes for the Pound.

The Euro to Pound Sterling (EUR/GBP) exchange rate advanced to a high of 0.7375 during Thursday’s European session.