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Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Soften on Robust British House Price Growth


EUR/GBP Conversion Rate Predicted to Decline after Improved Risk Appetite Dampens Demand for Carry Trades

The Euro to Pound Sterling (EUR/GBP) exchange rate softened by around -0.4% on Monday afternoon.

Having ended Friday’s trade gaining against the British Pound for a record eighth consecutive week, the EUR/GBP exchange rate softened on Monday morning. The depreciation is partly the result of traders taking advantage of Euro gains after a number of attractive selling opportunities prompted profit taking. Additional Euro losses today can be linked to improved trader risk appetite after Chinese equities ended the Asian session higher. This saw reduced demand for carry trades which have previously seen the single currency advance across the board since the turn of the year.

The Shanghai Composite Index ended the Asian session over 0.4% higher in response to intervention from the People’s Bank of China (PBoC). China’s central bank announced moves to curb offshore speculation in the currency, preparing to implement a reserve requirement ratio for some banks involved in the offshore Yuan market; intervention designed to soak up additional liquidity. ‘All in all, it appears that the Chinese authorities want to dampen the speculative flows that bet on a fast depreciation of its currency,’ said Zhou Hao, senior emerging markets economist for Asia at Commerzbank AG. As explained above, this caused heightened demand for higher-yielding assets and reduced demand for Euro carry trades.

The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7627.

GBP/EUR Conversion Rate Predicted to Hold Gains on Low Trade Weighting

Given that last week marked the eight consecutive week of losses for the GBP/EUR exchange rate, the significantly reduced trade weighting is likely to support the Pound against the Euro today. Additionally, a complete absence of further domestic data to provoke volatility should see continued demand for the Pound to Euro exchange rate. Also aiding Sterling gains on Monday was January’s Rightmove House Prices which saw monthly gains of 0.5% and annual gains of 6.5%.

‘Encouragingly for first-time buyers there’s more fresh choice with more property coming to market in their target sector,’ said Rightmove’s co-founder Miles Shipside. ‘With their asking prices pretty much the same as a month ago, perhaps the knock-on effects of the more punitive landlord tax regime have arrived early and they now face a dilemma over whether to buy now or wait to see if prices drop in this sector over the next few months.’

The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7593 during Monday’s European session.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: UK Inflation to Provoke Volatility

There will be a number of ecostats on Tuesday with the potential to provoke significant market volatility. China’s fourth-quarter Gross Domestic Product, Industrial Production and Retail Sales data will be hugely impactful on market sentiment.

For those invested in the Euro, German inflation data will be of significance. However, in terms of the EUR/GBP exchange rate the UK’s inflation data is likely to be far more impactful with low consumer prices being a massive stumbling block for a Bank of England (BoE) policy rate hike. As Tuesday progresses Eurozone inflation and the ZEW German Economic Sentiment Survey will likely provoke further EUR/GBP volatility.

The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.7661 during Monday’s European session.