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GBP/EUR Exchange Rate Forecast to Trend Higher Even after UK Construction Output Unexpectedly Slows


Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Strengthen despite Consolidation Trading

The Pound Sterling to Euro (GBP/EUR) exchange rate advanced by around 0.3% on Wednesday morning.

Over the past few days the British Pound has made a notable recovery versus the Euro, although still holding a comparatively weakened position. This is thanks to consolidation trading after the negative reaction, amid EU referendum uncertainty, is seen to be overdone.

Corrective Sterling trade seems to have eased on Wednesday, to some extent, with investors seemingly satisfied with the Pound’s current trade weighting. The Pound has endured a mixed-faring versus its major peers today, however, after domestic data produced disappointing results.

February’s Shop Price Index contracted by -2.0% and the Markit Construction PMI dropped from 55.0 to 54.2 in February, failing to meet with the median market forecast rise to 55.5.

In response to the construction data, Tim Moore, Senior Economist at Markit said; ‘UK construction firms remained in expansion mode during February, but a loss of momentum within the residential building sector meant that overall output growth was the weakest since April 2015. Aside from the pre-election slowdown last year, the latest upturn in construction output was the weakest for over-two-and-a-half years.’

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2871.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast to Trend Lower after Coeure Hints at ECB Easing

Amid mounting expectation that the European Central Bank (ECB) will look to ease monetary policy in March, the single currency has struggled versus its major peers. Given the low rate of inflation and tepid Eurozone growth, several economists have predicted that the ECB will adopt a negative benchmark interest rate.

A speech from ECB Executive Board Member Benoit Coeure has left investors somewhat confused as he reiterated the need for immediate action from the central bank to combat low inflation, but stated that the bank wanted to monitor the risk of negative interest rates by studying other jurisdictions that have adopted similar schemes.

‘We are well aware of this issue,’ Coeure said in a speech in Frankfurt on Wednesday. ‘We are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel. But I also think we need to qualify the narrative that banks’ challenges flow largely from our monetary policy.’

But he went on to say;

‘We face uncertainty about the outlook for the global economy, we face uncertainty about the direction of Europe and its resilience to new shocks — the UK referendum, the next wave of migration,’ Coeure said. The Euro area ‘urgently needs higher growth to bring down high unemployment, to deleverage the economy and to raise inflation back to our price-stability objective.’

The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.2789 during Wednesday’s European session.

GBP/EUR Exchange Rate Forecast: UK Services Data to Provoke Volatility

Given the absence of further British and European ecostats, there is a high chance that the GBP/EUR exchange rate will hold current gains for the remainder of Wednesday’s European session. With that said, there is a chance of Euro volatility in response to US data.

Thursday should see significant GBP/EUR volatility with several influential domestic data publications. The most significant of which will be the UK Services PMI and Eurozone Retail Sales.

The Pound Sterling to Euro (GBP/EUR) exchange rate reached a high of 1.2883.