- GBP EUR Exchange Rate Slips To 1.17 – Monday best undermined as inflation disappoints
- Eurozone Economic Sentiment Improves in September – But German sentiment slips
- Update: Wednesday Data Offers Limited Movement – UK unemployment data mixed
- Update: Bank of England Takes Mixed Tone – Further easing still possible
- Forecast: Eco-Calendar Quiet Until Next Week – Limp trade likely on Friday
GBP EUR Exchange Rate Falls as BoE Takes Mixed Tone
While the Bank of England (BoE) was unanimous in its decision to leave monetary policy frozen in its September meeting, the bank’s tone on the future of Britain’s economy wasn’t so straightforward.
The Pound to Euro exchange rate floundered later in the day, generally hovering just below the level of 1.1750 as investors sold the Pound off in reaction to the bank’s meeting minutes.
Bank policymakers were relatively upbeat and optimistic about Britain’s uptick in economic activity throughout August – as some analysts had speculated they would be.
However, the BoE was eager to remind markets that the August uptick may not last, and that the door would be left open for future easing in the coming months. Some analysts speculate that the bank will be ready to expand its easing measures as soon as its next meeting – in November – if September and October data disappoints.
The Pound to Euro exchange rate is unlikely to make strong gains on Friday amid a lack of key data publications. However, as the bank was not entirely dovish GBP/EUR could easily end the week above its worst levels of 1.1700.
(Previously updated 16:56 BST 14/09/2016)
GBP EUR Exchange Rate Sheds Levels Ahead of BoE Meeting
The GBP EUR exchange rate extended its worst weekly levels on Wednesday afternoon, briefly touching a new two-week-low of 1.1695 as Wednesday’s British employment stats failed to offer Sterling the support it needed.
As a result of the week’s mixed ecostats, investors were no longer at all confident that the Bank of England (BoE) would hint that monetary tightening was possible, with most analysts still suggesting that the door will likely be left open for more easing in the coming months.
Wednesday’s UK jobless claims data slightly disappointed, as a higher-than-expected number of new claims were made throughout the month. The May to July employment stats were also weighed down by news that real wage growth had slowed to 2.1%.
Eurozone data was equally mixed, with industrial production figures for the bloc contracting at -1.1% month-on-month and -0.5% year-on-year. While the yearly contraction was lighter than the expected result of -0.8%, the final figure was hardly positive.
Regardless, GBP/EUR still slipped later in the day due to low expectations for BoE hawkishness, as investors protected their assets from Thursday’s potential Pound swings.
(Previously updated 08:55 BST 14/09/2016)
The GBP EUR exchange rate gave up most of its Monday advances as the week continued and Britain’s August consumer prices failed to meet expectations of an inflation surge. However, Sterling may have more advance opportunities on Wednesday if the UK’s jobless claims, average earnings or unemployment figures impress.
However, the jobs data isn’t expected to prove too optimistic. The average earnings including bonuses figure is expected to dip from 2.4% to 2.1% while the average earnings excluding bonuses number is believed to have edged from 2.3% to 2.2%. An increase in jobless claims has also been projected. Better-than-expected results would be Pound positive but below forecast numbers could send the GBP EUR exchange rate lower still.
GBP/EUR experienced a solid loss last week, but looked to be on a different path on Monday as the pair surged half a cent from the week’s opening levels of 1.1813 to trend at around 1.1873 for most of the day. However, GBP/EUR plunged again on Tuesday after Britain’s latest inflation stats, briefly hitting a low of 1.1795.
Pound Euro (GBP EUR) Exchange Rate Slumps as Consumer Prices Fail to Impress
The Pound Euro (GBP EUR) exchange rate had been trending strongly on Monday and Tuesday morning, as investors expected August’s Consumer Price Index (CPI) report to indicate a surge in inflation due to the low value of the Pound since the Brexit vote.
However, upon the publication of the CPI report on Tuesday morning, Sterling began to lose its grip on Monday’s highs as inflation failed to meet expectations. The BBC reported;
‘The UK inflation rate, as measured by the Consumer Prices Index (CPI), was unchanged from July.
Rising food prices and air fares pushed prices higher, the Office for National Statistics said, partly offset by cheaper prices for hotel rooms.
Economists had forecast inflation would rise to 0.7%, predicting the cheaper Pound would push prices higher.’
The monthly score came in at 0.3%, letting down forecasts of an improvement to 0.4%, while the yearly score remained at 0.6% rather than improving to 0.7%.
An increase in producer prices, due to the low value of the Pound, had not yet translated into consumer prices and as such they were little changed from July.
While the report was not entirely dire, investors hoping for a notable spike in inflation were disappointed, and the approaching Bank of England (BoE) meeting left GBP investors anxious on Tuesday.
Euro (EUR) Exchange Rates Hold Ground on Mixed Tuesday Data
Euro (EUR) exchange rate strength improved on Tuesday despite Monday’s mixed movement. While much of the Euro’s strength was due to the day’s Pound selloff, the shared currency also benefitted from the latest Eurozone sentiment survey from ZEW.
Euro investors were largely uninspired on Tuesday morning following the publication of Germany’s final August Consumer Price Index (CPI) scores, which met underwhelming preliminary results of 0.0% month-on-month and 0.4% year-on-year.
German wholesale prices also disappointed, contracting in both monthly and yearly figures.
German data continued to disappoint later in the day when ZEW published its September economic sentiment and current situation surveys from Germany.
Economic sentiment was expected to improve from 0.5 to 2.5, but remained at 0.5. The current situation print also failed to meet expectations, falling from 57.6 to 55.1, past the expected 56.
However, the Euro was offered a little support by ZEW’s Eurozone economic sentiment survey, which improved slightly from 4.6 to 5.4. While not as much of an improvement as some hoped for, it did indicate that sentiment was improving since the Brexit vote.
News that Eurozone employment change had been better in Q1 than expected may also have bolstered Euro demand. The Eurozone’s Q2 employment figures came in at 0.4%, but Q1’s figure was revised higher to 0.4%. The year-on-year change rate remained at 1.4%.
GBP EUR Exchange Rate Forecast: UK Employment Figures Today
The GBP EUR exchange rate may struggle to recover from its Tuesday lows unless Wednesday’s UK datasets impress investors, but their influence may be limited so soon before the Bank of England’s (BoE) Thursday meeting.
British jobless claims figures for August will be published on Wednesday morning, alongside unemployment rate results for May through July. The claimant rate is expected to remain at 2.2% in August, and the unemployment rate is expected to stay at 4.9% from May-July.
Sterling could make a substantial recovery if the number of August claims is well below expectations, or if a larger-than-expected amount of people entered employment between May and July.
However, the Pound could otherwise remain near its weekly lows, even if the Eurozone’s July industrial production scores weaken Euro demand as investors adjust ahead of Thursday’s BoE meeting.
In the bank’s first monetary policy meeting since it introduced an aggressive package of stimulus measures in August, markets expect the bank to hint at the effectiveness of current measures as well as the potential for future easing.
If BoE officials hesitate to hint at future easing measures, the Pound could surge for the remainder of the week. However, if the bank continues to play up the need for more easing, the GBP EUR exchange rate will fall.