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GBP EUR Exchange Rate Struggles as Eurozone Stats Impress, Pound Forecast Rocky on BoE Bets

  • GBP EUR Exchange Rate Falls Below 1.19 – Heads back towards 1.1850
  • UK Sentiment Remains Poor – BoE rate cut bets soar after lame ecostats
  • Euro Boosted by Consistent Stats – Eurozone continues to appear sturdy in July
  • Update: Eurozone Data Wraps Up Week – Inflation beats expectations
  • Forecast: BoE Meeting Next Week – Bank likely to cut UK interest rate

GBP EUR Exchange Rate Movement Mixed on Friday

The Pound looked to end this week’s session much lower against the Euro, as Bank of England (BoE) rate bets and solid Eurozone data from July allowed the Euro to capitalise.

A thoroughly weak US Dollar also led to investors buying the Euro, as disappointing US data followed up this week’s Fed-inspired USD selloff.

Friday’s Eurozone data included July’s inflation estimate. Inflation is currently on track to beat expectations of 0.1%, improving to 0.2%.

Unfortunately, Eurozone Q2 GSP figures weighed slightly on the currency in the afternoon. News that France, the Eurozone’s second biggest economy, had stagnated in Q2 reminded investors that the Eurozone had issues besides the Brexit.

Next week, investors will adjust heavily on the Pound. Currently, markets widely expect a stimulus package from the Bank of England. Recent UK data has only increased the likelihood of more aggressive stimulus this week.

(Previously updated 10:44 BST 29/07/2016)

The GBP EUR exchange rate slumped during Thursday’s session as markets, now turning away from the US and the Federal Reserve’s recent interest rate decision, continued to react to gloomy UK economic news following the nation’s vote to Brexit. Better-than-expected Eurozone data boosted the Euro, leaving it in its most solid position in weeks.

Slipping yet further away from that key level of 1.20, the Pound to Euro rate has trended between 1.1950 and 1.1900 for much of this week. However, the pair hit its lowest level in around two weeks, 1.1837, on Thursday. On Thursday afternoon, GBP/EUR trended in the region of 1.1860.

Further pressure was applied to the Pound as BoE official David Blanchflower asserted that the central bank needs to do something in response to recent awful data.

Pound Sterling (GBP) Exchange Rates Slump as UK Economic Outlook Continues to Worsen

While Sterling has fluctuated with a downside bias for most of the week so far, it was sold off with a little more vigour during Thursday’s session after markets turned their focus away from the US Federal Open Market Committee (FOMC) meeting.

Following the US decision to leave rates frozen, the US Dollar’s strength was undermined and investors have since been readjusting their positions on major currencies. Sterling has been worse off as a result, with more investors now selling the currency in reaction to the past week’s news.

Preliminary PMI scores published last week, as well as manufacturing and retail reports released by CBI, have increasingly indicated that UK economic growth has taken a genuine hit since the Brexit vote.

Wednesday’s news potentially frustrated investors further, as better-than-expected Q2 UK GDP is unlikely to mean anything for growth past June. According to the Guardian;

‘The first health checks of important sectors since Britain voted to leave the European Union overshadowed growth figures, showing a stronger-than-expected performance by the UK in the run-up to the referendum.

An expansion of 0.6% in the British economy between April and June was countered by signals from the construction industry, car factories and high street stores that provide the Bank of England with justification for moving to boost growth when its interest rate-setting committee meets next week.’

Concerns about the UK economy continued on Thursday as Lloyds Bank announced that it would accelerate its job and branch cutting process due to the likelihood of lower interest rates post-Brexit.

Euro (EUR) Sturdies as Eurozone Ecostats Continue to Impress

In something of an opposite story to the UK’s economic situation, the Eurozone has beaten expectations by displaying better-than-expected figures in multiple early July reports.

In a trend that began to make itself known with last week’s preliminary Eurozone PMIs, Eurozone data continues to print above the bearish forecasts given.

Expectations that the Eurozone’s economic health would be hit heavily by Britain’s vote to ‘Leave’ the European Union have been uprooted by the figures. Markets are now increasingly confident that the Eurozone remained relatively resilient in the face of the Brexit and hasn’t experienced too many negative side effects.

Eurozone unemployment in July also beat expectations when scores were published on Thursday. German unemployment decreased by 7k, and the Spanish unemployment rate dropped from 21% to a 17-year-low of 20%.

Eurozone sentiment also improved in July, according to Reuters;

‘Eurozone economic sentiment improved in July, defying market expectations of a decline, but economic sentiment in the wider 28-nation European Union fell in reaction to Britain’s vote to leave the EU, the European Commission said on Thursday.

… But sentiment in the wider bloc, which includes non-Eurozone countries like Britain, fell to reflect a sharp decline in optimism in the wake of the 23 June British referendum to leave the EU.’

The report reflects that while Eurozone sentiment was up, overall sentiment throughout the EU was adversely effected by the slide in UK sentiment, with Britain still remaining part of the Union for the time being.

GBP EUR Exchange Rate Forecast: Eurozone Data Today, BoE Meeting Next Week

The Pound will likely be unable to recover to this week’s highs during Friday’s session, as the Bank of England’s (BoE) August policy decision meeting is already less than a week away.

In July’s policy meeting, the BoE shocked world markets by leaving UK interest rates on hold. BoE Governor Mark Carney cited that it was important to wait for the Brexit’s effects on the economy to become more apparent before rushing to release an economic stimulus package.

The bank had already indicated that action was likely in August, but following recent UK data and comments from BoE policymakers like Martin Weale, bets of an August stimulus package are even higher.

On the other hand, the Euro has the potential to keep advancing against the Pound if Eurozone data continues this week’s upbeat trend.

Data due for publication today includes Eurozone unemployment in June, a fresh Eurozone inflation estimate for July, and preliminary Q2 Eurozone growth.

The July inflation estimate is the upcoming print most likely to drive the GBP EUR exchange rate forecast as the week’s session draws to an end.