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Pound Euro Outlook Remains Weak on Bank of England News – GBP/EUR Forecast to be Shifted by Inflation Data

  • Pound to Euro Exchange Rate Slips to 1.18 – Bank of England disappoints traders
  • Euro Demand Limited despite Solid Data – Shared currency sold from weekend highs
  • Bank of England Takes Cautious Stance – Pound Falls on ‘Super Thursday’
  • Forecast: UK Inflation Data Due Next Week – As well as Eurozone growth

Pound Euro Exchange Rate to React to Data Next Week

Towards the end of Friday’s European session, the Pound to Euro exchange rate had shed almost all of its weekly gains and trended near the week’s opening level of 1.1801. The pair fell into the region of 1.17 briefly on Friday afternoon.

GBP EUR losses in the second half of the week were largely the result of Thursday’s Bank of England (BoE) news, though Eurozone data strengthened the Euro towards the end of the week.

Next week’s UK economic calendar will be busier. Throughout the week, key UK ecostats including April inflation figures and retail sales, April jobless claims and March unemployment stats.

Over in the Eurozone, Q1 growth projections will be published on Tuesday for Italy and the overall bloc. ZEW will also publish its May economic sentiment surveys.

[Previously updated 12:45 BST 12/05/2017]

The Pound continued to be sold throughout Thursday’s session and on Friday morning as investors digested this week’s Bank of England (BoE) news.

Friday’s session also gave additional boosts to Euro trade thanks to the day’s ecostats.

Germany’s Q1 Gross Domestic Product (GDP) is projected to improve from 0.4% to 0.6% quarter-on-quarter. While investors hoped it would come in at 0.7%, the 0.6% result still makes Germany the fastest growing major economy of 2017 so far. Year-on-year growth came in at 1.7% as predicted.

Eurozone industrial production data was mixed however. The monthly score contracted at -0.1%. This was largely due to drops in energy production but the report was generally optimistic otherwise.

[Previously updated 12:49 BST 11/05/2017]

Bank of England (BoE) Disappoints GBP/EUR Traders

The Bank of England’s (BoE) ‘Super Thursday’ wasn’t so super for the Pound, as investor optimism about the British currency dropped following a cautious BoE meeting.

The Pound to Euro exchange rate fell back to the region of 1.18 as a result, but still remains comfortably above the week’s opening levels of 1.1801.

As investors expected, the bank left UK monetary policy frozen at its lowest levels on record. However, investors had speculated and hoped for the bank to be more hawkish on the short term.

Traders hoping for a 6-2 split vote on Britain’s interest rate were disappointed by the 7-1 split. Once again, Kristin Forbes was the only hawkish policymaker.

The bank also took a gloomier tone on Britain’s growth outlook. The growth forecast was downgraded slightly while the bank warned that this forecast was made under the assumption that Brexit negotiations would be ‘smooth’.

[Published 06:00 BST 11/05/2017]

Despite a lack of fresh supportive UK data, the Pound Euro exchange rate continued advancing on Wednesday as traders anticipated the Bank of England (BoE)’s May policy decision. The Euro continued to be sold in profit-taking.

GBP EUR began this week trending at the level of 1.1801 and has since gained around a cent to trend in the region of 1.1900. On Wednesday morning the pair briefly touched a high of 1.1928 – its best level since late-April.

Pound (GBP) Advances as Investors Anticipate BoE News

The Pound has seen consistent gains against the Euro this week despite a quiet UK economic calendar.

GBP investors are optimistic about the UK general election less than a month from now, as well as the Bank of England (BoE) policy meeting set to take place on Thursday.

While markets don’t expect the BoE to make any changes to UK monetary policy, any hints that changes could come in the foreseeable future would cause big Sterling movements.

Investors are currently hoping that the bank will adopt a more hawkish tone this week in reaction to Britain’s strong economic performance in recent months. This has bolstered Pound appetite.

A forecast from the National Institute of Economic and Social Research (NIESR) also improved demand for the Pound on Wednesday.

NIESR argued that the Pound’s recent gains could help limit a surge in inflation and keep things affordable for UK citizens, but still keep inflation above BoE targets. NIESR lowered its 2017 inflation forecast from 3.7% to 3.4%.

Euro (EUR) Unchanged after Draghi Speech

Wednesday saw European Central Bank (ECB) President Mario Draghi hold his first speech since the French Presidential election. Perhaps unsurprisingly, Draghi made no reference to the election and instead repeated familiar defences about the bank’s aggressive stimulus package.

Draghi argued that while it was too early to call the ECB’s measures a success, they were helping to keep inflation positive. He stated;

‘Since the start of 2013, inflation had drifted consistently away from the ECB’s target rate of below but close to 2% over the medium term, reaching levels below 1%.

Without counteracting measures, this low inflation could have turned into a deflationary spiral which would have deepened our economies’ woes considerably.’

Draghi disappointed markets slightly by once again repeating that Eurozone monetary policy will be changed once the currency bloc’s inflation is solid enough to continue without help from stimulus.

The Euro also failed to benefit from Wednesday’s relatively low-influence Eurozone ecostats. France’s trade deficit lightened further than expected in March, and industrial production was better-than-expected in both France and Italy.

Overall, the Euro remained weak on Wednesday.

Pound Euro Exchange Rate to be Influenced by Bank of England News

Unsurprisingly, the main market event on Thursday, or ‘Super Thursday’, will be the Bank of England’s (BoE) May policy decision. The bank will be publishing its meeting minutes and inflation report at the same time it makes the policy announcement.

The BoE is expected to leave UK monetary policy frozen. The main focus will be on the tone policymakers take in the announcement and meeting minutes.

Any indication at all that the bank is feeling pressure from rising UK inflation, or a more hawkish tone, will give the Pound a boost towards the end of the week. In this scenario, GBP EUR is likely to end the week above its opening levels.

However, a cautious or dovish tone from the bank may come as a disappointment to some bulls hoping for the BoE to move away from ultra-loose monetary policy.

Thursday’s European session will also see the publication of Britain’s March trade deficit, manufacturing production and industrial production results. The day’s Eurozone data includes April’s inflation results from Ireland.

Friday’s session will be more influential for Euro trade. Key German data, including preliminary Q1 Gross Domestic Product (GDP) figures and final April Consumer Price Index (CPI) results will be published.

Eurozone industrial production data from March will also be published, but Bank of England news and German growth data is most likely to influence the Pound to Euro exchange rate for the rest of this week.