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Euro Remains Steady against Sterling despite Rising Eurozone Confidence

After a pair of high-impact Eurozone and UK announcements, the EUR GBP exchange rate has largely remained unchanged.

Thursday morning’s Eurozone confidence data showed rising optimism across the board in June, despite forecasts for minor growth.

In UK news, national lending and borrowing stats rose in May, further building the case for a near-term Bank of England (BoE) interest rate hike. Given that the UK has been in the grips of a wage squeeze for months now, the BoE may have to stomach an interest rate hike to prevent further debt-accumulation by UK consumers.

(First published 09:26, June 29th, 2017)

The EUR GBP exchange rate has traded in a narrow range today, following a pair of knee-jerk reactions by traders on central bank statements.

  • EUR GBP rate trades at 0.8800 – GBP EUR trades at 1.1361
  • Euro Pound rate remains near 2017 high – German confidence rises in June
  • Pound unsettled by Carney comments – Traders overreact on rate hike ‘hints’
  • Eurozone confidence stats incoming – Pound dip possible on lending stats

Trading at around 0.8797 against the Pound, the Euro is still near the best EUR GBP exchange rate of 2017, which is 0.8879.

Euro Trading Settles after Draghi Comments Cause Chaos

The Euro’s measured performance against the Pound today comes after two days of high volatility.

This started on Tuesday, when European Central Bank (ECB) President Mario Draghi stated that ECB policies were having a positive effect on Eurozone inflation. Notably, Draghi also implied that policy tightening could be coming, but on the proviso that Eurozone growth remained consistent.

Traders largely ignored the latter half of this statement and piled into the Euro, which caused it to rise sharply against the Pound.

Since then, however, Draghi’s comments on Wednesday have largely deflated expectations. Confirming what he had said previously, Draghi stressed that conditions must be met before monetary policy could change. This had a cooling effect on Euro trading, causing it to dip against the Pound.

Commenting on the rollercoaster events was Lindsey Group Chief Market Analyst Peter Boockvar;

‘One day of selling after what was clear in Mario Draghi’s message and the ECB is already in panic mode as BN (Bloomberg News) prints a headline. This just proves how trapped they are that after just one speech and the market reaction that followed has the ECB already in a tizzy’.

In clearer Eurozone news, Spanish inflation has fallen in June, but German consumer confidence in July has risen above forecasts.

Pound sees Similar Volatility after BoE’s Carney Comments

Bringing a clear sense of déjà vu for traders, the Pound’s recent movements have also been tied to trader reactions to a central banker’s comments.

As with the Euro, the Pound appreciated sharply on Bank of England (BoE) Governor Mark Carney’s comments on Wednesday. As with Draghi, the suggestion was that monetary policy tightening could be coming in the near-future, which sent the Pound soaring to 1.1394.

Last week, Carney had effectively dismissed a 2017 interest rate hike, while on Wednesday BoE official Jon Cunliffe also downplayed the chances of such an event.

In a virtual repetition of Euro trading, the Pound has since dipped in value, due to a revaluation of Carney’s comments which also were ultimately cautious in nature.

Summarising Carney’s remarks has been UBS UK Interest Rate Strategist John Wraith;

‘I don’t think he said anything new’.

Euro could Rally if Eurozone Confidence Scores Print Positively

The next Eurozone news is due imminently, covering confidence in June. On the whole, confidence scores are forecast to rise, which could trigger some Euro appreciation.

For the Pound, losses may be on the immediate horizon when UK lending stats come out. Covering May, the lending and credit figures may weaken the Pound if they show rising personal debt levels.

Carney has warned this week that high consumer debt is a problem if interest rates start to rise, so more lending may equal more problems for the national economy.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8800 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1363.