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Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Dive after Eurozone PMIs Miss Estimates

EUR/GBP Conversion Rate Predicted to Decline as ECB Stimulus Projections Weigh

The Euro to Pound Sterling (EUR/GBP) exchange rate softened by around -1.1% on Friday afternoon.

In response to less-than-ideal domestic data, the Euro depreciated versus many of its rivals. The preliminary results for German Services, Manufacturing and Composite PMIs all failed to meet with expectations in January. Additionally, the preliminary readings for Eurozone Services, Manufacturing and Composite PMIs also failed to reach economists’ forecasts in the same month. The Euro avoided a steeper depreciation, however, due mostly to the fact that the Eurozone PMIs still showed robust growth. Also weighing heavily on demand for the single currency was a recent speech from European Central Bank (ECB) President Mario Draghi who hinted that the Frankfurt-based central bank will look to ramp up stimulus in March.

In response to the Eurozone Composite PMI, Chris Williamson, Chief Economist at Markit said: ‘The cooling in the pace of growth in Euro area business activity at the start of 2016 is a disappointment but not surprising given the uncertainty caused by the financial market volatility seen so far this year. It would be wrong to get too worried. The survey data are consistent with GDP rising at a steady quarterly rate of 0.3-0.4% at the start of the year. Firms also appear to be looking to brighter times ahead, with business confidence improving, linked in turn to backlogs of work rising at the fastest rate since the spring of 2011. With plenty of orders-in hand to work through, hiring remained encouragingly resilient at the start of the year.’

The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7551.

GBP/EUR Conversion Rate Predicted to Surge despite Weaker-than-Expected British Retail Sales

Despite the fact that British Retail Sales in December only saw 2.6% growth on the year, well below the 3.5% market consensus, the British Pound strengthened versus its currency rivals. This is thanks to better-than-anticipated UK government borrowing data. December’s Public Sector Net Borrowing was predicted to rise by 10 billion, but the actual result only saw 6.9 billion borrowed. In addition, an estimate for November’s government borrowing was decreased from £14.2 billion to £13.5 billion, but the total borrowing for the year to date is £74.2 billion, which exceeds the Office of Budget Responsibility’s estimated total borrowing of £68.9 billion.

The Financial Times stated: ‘In the autumn statement in November last year, the Chancellor stressed that the UK is still on course to swing to a budget surplus by 2019/20. Following the autumn statement – often described as a “mini Budget” – Mr Osborne had faced calls to ease the pace of austerity cuts. But earlier this month Mr Osborne highlighted the risks facing the UK economy this year, warning that a slowdown in the Chinese economy and the sharp slide in oil prices – which caused havoc in markets this week – were part of a “dangerous cocktail of new threats” to growth in the UK.’

The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7524 during Friday’s European session.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: BoE’s Cunliffe to Provoke Volatility

Given that there as an absence of further influential domestic data pertaining to the UK and Europe today, the Euro to Pound Sterling (EUR/GBP) exchange rate is likely to hold losses for the remainder of Friday’s European session. With that being said, however, a speech from Bank of England (BoE) Deputy Governor Sir John Cunliffe has the potential to provoke volatility. US data may also impact the EUR/GBP pairing given EUR/USD negative correlation. Traders will be focussed on the US Manufacturing PMI, which is projected to tick slightly lower.

The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.7636 during Friday’s European session.