The Pound Euro exchange rate undulated, but ultimately ended the session on bearish form yesterday after jobless claims data. GBP remains weak this morning ahead of the latest UK monetary policy decision; traders aren’t expecting changes, but there is a chance the Monetary Policy Committee (MPC) will strongly signal further easing is on the way.
Today sees the Bank of England meeting to discuss monetary policy, while the Eurozone will release finalised consumer price figures.
Pound Remains Weak as UK Probes into Brexit Terms are Rejected by EU
The Pound continues to wallow after the Bank of England (BoE) signalled further easing likely in November at yesterday’s policy meeting. Also weighing on the Pound is the news that EU leaders have thoroughly rejected attempts by UK officials to hold talks regarding the Brexit before Article 50 is triggered.
The EU quickly established following the referendum that the UK Brexit vote was binding and therefore it would not allow UK officials to negotiate a deal and then decide if it was good enough to make leaving the Union worthwhile before formally initiating the withdrawal process. However, UK officials have continued to try and convince their European counterparts to provide hints or guidance on the EU’s position – particularly on the likelihood that the UK will be able to secure single market access without accepting free movement in return.
EU officials have held their position, suggesting the UK will enter the exit negotiations blind and with no knowledge of how its terms compare to those the bloc is willing to offer.
Weighing on both the Pound and the Euro today is the news that the US Department of Justice (DoJ) intends to fine Deutsche Bank $14 billion for allegedly mis-selling mortgage-backed securities before the financial crisis. The German lender says it has no intentions of paying the fine, but -US$1.5 billion has been knocked off its value as shares plummet. Investors are skittish, wondering which bank will be next, with the Pound weakened by speculation that the taxpayer-owned Royal Bank of Scotland (RBS) may be next.
(Last updated 09.00, 16/09/2016)
Bank of England Holds Rates, Signals Further Easing; Pound Exchange Rates Weaken
The Bank of England has conformed with median market expectations today, holding rates at 0.25% and leaving the rate of asset purchases at £435 billion. As expected, the Monetary Policy Committee (MPC) signaled in the meeting minutes that further easing was likely. Markets have reacted dovishly to this, with hopes the recent strong PMI data would have improved policy outlook dashed.
(Previously updated 16.38, 15/09/2016)
Strong UK Retail Sales Lower Bank of England Rate Cut Odds
UK retail sales figures for August have failed to improve the fortunes of the Pound today, despite doing significantly better than markets expected. Overall retail sales only declined -0.2% on the month compared to a forecast drop of -0.7%. Yearly sales edged lower from 6.3% to 6.2%, dashing forecasts of a drop to 5.4% growth. All the previous month’s growth figures were revised higher. This suggests that consumer spending felt little impact from the Brexit vote, lowering the likelihood the Bank of England (BoE) will need to cut interest rates further.
(Previously updated 10.00, 15/09/2016)
UK Claims Show Little Brexit Impact but Pound (GBP) Weakens on Long-Term Fears
Jobless claims data for August caused an initial spike in the Pound, although gains were quickly lost. GBP was driven higher by market relief that there was little, or no, trace of a Brexit shock in the data.
However, wage growth slowed by a greater-than-forecast amount and jobless claims rose further-than-expected. On a more positive note, the employment change figure showed that the economy added 174,000 jobs in the three months to July, slightly above forecast.
PwC Chief Economist John Hawksworth cautioned against reading too much into the data, claiming;
‘Unemployment tends to be a lagging indicator, as companies will take time to adjust their hiring plans to the post-referendum world. So it will be some months before we can reach firm conclusions on the labour market impact of the Brexit vote.’
Euro (EUR) Exchange Rates Weaken as ECB’s Knot Suggests Diminishing Stimulus Returns
The European Central Bank (ECB) can find additional policy instruments if stimulus is needed, but risks a diminishing rate of return, Klaas Knot has warned. Knot, part of the ECB’s policy-setting Governing Council and head of the Dutch central bank, cautioned that;
‘The problem is of course one of decreasing returns to scale… if you provide more and more of essentially the same medicine. So you have decreasing efficiency and probably increasing side effects.’
This weakened the Euro on the suggestion that continued loose Eurozone monetary policy may not be working.
Pound to Euro (GBP EUR) Exchange Rate Forecast; Will BoE Weaken the Pound with Easing Signals?
Market consensus is for no changes from today’s Bank of England (BoE) policy meeting. However, there could be indications that more policy loosening is on the way, which would weigh on the Pound.
Finalised Eurozone consumer price index figures could hammer home the fact that ECB stimulus seems to be having little effect in boosting price growth, weakening the Euro.
Current Pound (GBP) and Euro (EUR) Exchange Rates
The Pound Euro (GBP EUR) exchange rate was trending in the region of 1.1715, while the Euro Pound (EUR GBP) exchange rate traded around 0.8537, during yesterday’s European session.