- GBP/EUR Climbs on Narrowed March Deficit – Pound gains despite mixed deficit news
- German Industrial Production Flops – Trade surplus expands as forecast
- UK Industrial, Manufacturing Production – Mixed results weigh on Sterling
- Forecast: ‘Super Thursday’ Ahead – Will the BoE dampen sentiment?
In just a few hours the Bank of England (BoE) will be delivering its interest rate decision, policy meeting minutes and inflation forecast.
The trio of announcements could have a significant impact on demand for the Pound, particularly if one or more members of the Monetary Policy Committee (MPC) votes to cut interest rates.
Negatively revised UK growth or inflation forecasts would also have a damaging impact on Sterling and could send the GBP/EUR exchange rate lower as the European session continues.
GBP/EUR Drops as UK Industry Enters Recession
The Pound could be on track to lose almost -0.4% against the Euro during Wednesday’s session after the day’s mixed production data revealed that the UK industry had fallen into recession for the third time in eight years.
According to the BBC;
‘Manufacturing and construction is proving to be a drag on the whole economy, helping slow UK economic growth from 0.6% in the last three months of 2015 to 0.4% between January and March, according to the ONS.’
At the time of writing, GBP/EUR trended in the region of 1.2640.
Monthly Manufacturing/Industrial Production Results Disappoint, GBP Lower
The Pound consolidated earlier losses against the Euro following the publication of the UK’s Manufacturing/Industrial Production reports.
While the decline in annual industrial output was less severe than expected at -0.2% rather than the -0.4% expected, the as-forecast year-on-year slide in Manufacturing Production of -1.9% provided cause for concern, while both monthly outcomes showed a slower-than-forecast pace of output.
The data left GBP/EUR trending in the region of 1.2670.
Ahead of the publication of the UK’s Industrial and Manufacturing Production reports, the Pound slid by -0.25% against the Euro.
Hopes that the ongoing Greek bailout talks will progress positively lent the Euro support in a day devoid of Eurozone data.
Greek Prime Minister Alexis Tsipras was quoted as saying: ‘After six years of continued cuts, bad news and harsh austerity, we finally had some good news.’
If today’s UK data disappoints the Pound could extend declines.
As it stands, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.2668
With Tuesday’s session drawing to a close, the Pound looks likely to sustain an almost 0.3% gain over the Euro as GBP/EUR trends in the region of 1.2692.
The Pound’s strength was bolstered by news that the UK trade deficit narrowed in March, with the goods trade deficit lightening from £-11.420b to £-11.200b and the total deficit narrowing from £-4.30b to £-3.83b.
While the figures beat out estimates, the full Office for National Statistics (ONS) report revealed that the deficit was worse overall in Q1 2016 than it had been in Q4 2015 and had widened to its worst point since 2008. The news slowed Sterling’s rally, but did not reverse it.
Pound (GBP) Steady against Euro (EUR) on Mixed German Data
The Pound Sterling to Euro (GBP/EUR) exchange rate was unmoved from the day’s opening levels of 1.2660 as ecostats from both the UK and Germany failed to impress.
While the British Retail Consortium’s Like-for-Like Sales figure came in below estimates, German industrial production was shown to have tanked on the month in March, sliding -1.3% rather than dipping the -0.2% expected.
German trade data was slightly more encouraging however, with a -2.3% decline in imports and 1.9% growth in exports resulting in a wider trade surplus of 26.0b.
The Pound could advance on its European peer in the hours ahead if the UK’s trade deficit narrows as forecast.
The Pound Sterling to Euro (GBP/EUR) exchange rate traded largely flatly throughout Monday’s session despite attempts from both currencies to advance. Optimistic Eurozone data was unable to bolster the Euro enough despite a lack of key UK data.
After hitting a low of 1.2618 and a high of 1.2705 on Monday, GBP/EUR closed out the European session close to the day’s opening levels.
Pound Sterling (GBP) Holds Ground as ‘Brexit’ Still Considered Unlikely
Last week’s shockingly poor UK PMI seems to have done little to the Pound’s defences, as the currency held its ground throughout Monday despite a lack of new positive economic factors.
Despite warnings last week that British growth could stagnate in Q2 if economic news in May and June followed April’s lows, Sterling found itself attempting a recovery regardless and holding its own against the Euro despite optimistic Eurozone data.
Monday’s headlines were dominated by ‘Brexit’ discussions, including news that almost half of the Europeans asked believed that Britain leaving the European Union in June would lead to EU referendums in other Eurozone nations.
Not only this, but according to New Model Adviser, the Bank of England (BoE) is even weighing up contingency measures for a potential ‘Brexit’.
‘BoE boss Mark Carney has been sounding out the UK’s top banks to determine whether their balance sheets can absorb a rate reduction.’
However, as polls and analysts are still largely indicating that Britain will remain with the 28-member bloc, Sterling was allowed to maintain strength. News that various World War II veterans support the UK remaining in the EU are also thought to have bolstered the strength of the ‘Remain’ campaign.
Euro (EUR) Unable to Advance Despite Optimistic Investor Confidence Report
The Euro has felt the weight of the European Central Bank’s (ECB) dovishness for the last few weeks as confidence in the effectiveness of the central bank’s current easing measures waned.
Last week’s Eurozone data also included a near full slate of worse-than-expected PMI results, with Friday’s Eurozone Retail PMI even printing in contraction territory at 47.9.
Monday’s data was more positive however, as March’s German factory orders reports came in above expectations. After a -0.8% contraction in February, orders accelerated by 1.9% month-on-month in March, well above forecasts of 0.6%. Year-on-year, the figure accelerated from 0.7% to 1.7% despite being predicted to slow to 0.1%.
Eurozone Investor confidence is also up in May, according to a new report released by Sentix. The key report indicated that April’s score of 5.7 rose past forecasts of 6.0 to an impressive 6.2.
However, Eurozone investors may instead have turned their attention towards Greek’s ongoing debt worries. A report published by Reuters indicated that Eurozone finance ministers could begin talks to assist Greece with its debts, a possibility which left the Euro unappealing.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Trade Balances Anticipated Today
Due for release this morning is a slightly more bustling set of Eurozone and UK data, more likely to influence GBP/EUR’s movement than Monday’s ecostats.
Due for release shortly is fresh German data for March, including industrial production and a trade balance update, complete with export and import data. Industrial data is currently forecast to have slowed from 1.3% to 1.1% year-on-year.
The anticipated German trade balance, on the other hand, is expected to increase from a surplus of €19.8b to €20.4b.
This is a stark contract to Britain’s trade balance report due a few hours later, which is projected to show the UK’s large goods deficit of £-11.964b lighten to around £-11.200b.
If the UK trade deficit narrows by less than expected, or worsens, the Pound could see additional pressure as the report is hot on the heels of last week’s economic growth warnings. On the other hand, more positive German data could see the Euro begin a recovery.