- Bullish BoE/TNS inflation forecast failed to shore up Pound – Referendum uncertainty continued to hamper sentiment
- German CPI confirmed at 0.1% on the year – Odds of further ECB easing seen to fall
- Improved UK inflation expected to boost GBP/EUR exchange rate – Pound may strengthen on stronger inflationary outlook
- Euro forecast to make gains on stronger Eurozone industrial production – Safe-haven demand also likely to support single currency
GBP/EUR Edges Higher after Inflation Data
The Pound Sterling to Euro exchange rate managed to advance 0.3% and return to the 1.26 level as European trading continued on Tuesday.
Although the rate of UK consumer price pressures didn’t accelerate as expected, the unchanged figure was solid enough to lend GBP some support.
Sterling even held gains against the Euro after the Eurozone’s Industrial Production report beat forecasts.
While new polls showing increased support for the ‘Leave’ campaign emerged, the ‘Remain’ camp also secured a modest victory when the European Court of Justice (ECJ) blocked the European Commission’s attempts to veto one of the changes brokered by David Cameron during his attempt to renegotiate the terms of the UK’s EU membership.
(Previously updated 08:30 14/06/2016)
Hawkish ECB Commentary Bolstered Euro (EUR) Demand
Comments from Bundesbank President Jens Weidmann helped to shore up support for the Euro (EUR), encouraging confidence that the European Central Bank (ECB) will not engage in further monetary easing imminently.
However, as demand for the Pound recovered somewhat towards the end of Monday’s European session the Pound Sterling to Euro (GBP/EUR) exchange rate continued to trend in the region of 1.2604.
(Previously updated at 15:07 on 13/06/16)
GBP/EUR Down 1% with ‘Brexit’ Fears Growing
As a new week of trading kicked off, the Pound Sterling to Euro (GBP/EUR) exchange rate dropped by nearly 1% to trade in the region of 1.2550.
Amid growing uncertainty in the build up to the EU Referendum, the Pound also lost over 0.5% against rivals like the US Dollar, Australian Dollar, New Zealand Dollar and Canadian Dollar.
A poll published on Friday gave the ‘Leave’ campaign a significant lead in the polls, providing cause for concern and setting Sterling on its downtrend.
‘The mixed picture painted by the EU referendum polls has heightened market jitters about the outcome, with sterling repeatedly reacting to poll results. Sterling lost more than half a cent against the dollar GBP soon after the ORB poll was released.
The British polling industry is under pressure over its surveys on the EU referendum question after it failed to predict the Conservative victory in last year’s general election. For months, the polls were pointing to an inconclusive outcome.’
However, as other polls showed the result to be much tighter than the ORB release, the Pound went on to recoup losses against the Euro and return to trending around the 1.2660 level.
(Previously updated 12/06/2016)
‘Brexit’ Worries Weighed Down Pound Sterling (GBP) despite Positive UK Data
After declining over the course of last week as a result of EU referendum inspired uncertainty, there’s hope for the Pound to recover this week with the UK set to publish its latest inflation figures.
Sentiment towards Pound Sterling (GBP) turned bearish ahead of the weekend, in spite of better-than-expected UK data. Construction Output was found to have strengthened markedly in April from -3.6% to 2.5%, another sign that referendum uncertainty has not been having an overly dramatic impact on domestic economic activity. Nevertheless, neither this nor an optimistic BoE/TNS twelve-month inflation forecast was enough to encourage confidence in the Pound as a fresh round of ‘Brexit’ worries weighed heavily on the currency.
Although investors had not expected any change in the finalised German Consumer Price Index for May the result still offered support to the Euro (EUR) on Friday. Confidence in the single currency was boosted further by a particularly strong rebound in French Industrial Production on the month in April. Altogether this helped to ease concerns over the outlook of the Eurozone economy, particularly as markets are increasingly dismissing the likelihood of the European Central Bank (ECB) easing policy again in the near future.
Higher UK Inflation Forecast to Shore up GBP/EUR Exchange Rate
Tuesday’s UK Consumer Price Index report could offer a rallying point for the Pound, with expectations pointing towards a fresh uptick in domestic inflationary pressure. Inflation is predicted to have ticked higher from 0.3% to 0.4% on the year in May, a result which would likely bolster the impact of the recent BoE/TNS forecast. A stronger showing would be seen to increase the chances of the Bank of England (BoE) opting to raise interest rates sooner rather than later, assuming that the UK votes to remain within the EU.
However, the impact of any positive data could be overshadowed by continued unease over the upcoming referendum. The latest round of opinion polls are likely to be the major influence on investor sentiment at the start of the week, particularly if support for the ‘Leave’ campaign is shown to have risen further. Any suggestion of greater ‘Remain’ camp strength could see the Pound climb higher against rivals, although as Peter Dixon, research analyst at Commerzbank noted:
‘But whilst the bookmakers are assigning a probability of well above 70% to the likelihood that the UK will remain in the EU we need to treat this with caution, particularly because a decisive factor in the result will be the turnout.’
Euro (EUR) Predicted to Strengthen on Bullish Eurozone Industrial Production Result
Safe-haven demand could see the single currency remain on bullish form this week, with the Euro likely to be one of the major beneficiaries of continued ‘Brexit’ volatility. Monday’s raft of Chinese data may increase the appeal of the common currency, with any downside surprise expected to prompt investors to pile into lower-risk assets.
While major Eurozone ecostats will be a little more limited in the coming days Tuesday’s Eurozone Industrial Production data is expected to shore up the single currency. Forecasts suggest that sector output rose bullishly from 0.2% to 1.3% on the year in April, a sign that could indicate that the ECB’s monetary loosening measures are having a positive impact on the domestic economy. Any signs of dovishness from policymakers is thus unlikely to form any particular drag on the Euro.