- Pound Euro Exchange Rate Forecast to Slip Below 1.19 – Falls further from 1.20 on Tuesday
- Tuesday Data Fails to Inspire Pair – UK inflation beats expectations, ZEW surveys worrying
- Update: European Central Bank Meets on Thursday – Brexit gets passing mention
- Forecast: Preliminary July PMIs Ahead – Both UK and EU figures on Friday
Pound Euro Exchange Rate Forecast to Drop Further on Friday
The Pound to Euro exchange rate slipped on Thursday after its Wednesday gains, as poor UK data and an uneventful European Central Bank (ECB) meeting allowed the Euro to take some levels from Sterling.
The UK’s June retail sales figures initially undermined the Pound as investors had presumed that the disappointing scores were due to Brexit jitters. However, lower-than-expected clothing purchases due to poor weather in June was the primary reason for little consumer spending through the month.
On the other hand, the ECB shocked no one when it opted to once again leave monetary policy frozen. ECB President Draghi hinted that bigger decisions may be made in September.
As for Draghi’s reaction to the Brexit, the ECB President remained calm. He stated that it was too early to notice definite effects of the Brexit result, but suggested that the event would be cause a 0.3-0.5% downside risk to Eurozone growth over the next three years.
Friday’s news to watch will be the UK and Eurozone’s preliminary July PMIs. For the UK especially, these could be the first decent indication of how the Brexit has affected UK work sectors.
(Previously update 10:52 BST 21/07/2016)
Sliding Spending Sends GBP EUR Exchange Rate Lower
With UK retail sales falling by considerably more than expected in June, the Pound Euro exchange rate lost around 0.3% on Thursday. Whether or not the pairing extends these losses largely depends on the tone adopted in today’s European Central Bank (ECB) interest rate decision.
A dovish ECB could help the Pound push higher against the Euro again before the close of the European session.
The Pound Euro exchange rate is currently trending in the region of 1.1976.
(Previously updated 09:00 21/07/2016)
Pound Euro Exchange Rate Forecast to Gain if ECB is Dovish
The Pound to Euro exchange rate gained once more on Wednesday as Pound investors reacted optimistically to news that UK unemployment was lower in May than expected.
Solid employment figures for May as well as promising jobless claims figures for June boosted an otherwise limp Sterling slightly higher throughout the day.
On the other hand, the Euro fluctuated against most currencies. Investors readjusted on the shared currency ahead of Thursday’s key European Central Bank (ECB) policy decision.
While the ECB is not expected to introduce any stimulus measures in its July meeting, as the bank’s first post-Brexit meeting it could offer up some dire forecasts of the Brexit’s potential effects on the Eurozone.
A dovish report or statement from ECB President Mario Draghi about the Brexit would likely send the Euro plunging lower, allowing Sterling to advance – potentially even above the key level of 1.20.
Whether or not the Pound Euro exchange rate is able to advance as high as 1.21 in the weeks ahead largely depends on how new PM Theresa May approaches negotiations for the UK leaving the European Union.
(Published 06:00 BST 20/07/2016)
Key domestic data appears to have little effect on this week’s Pound Euro exchange rate forecast, as Tuesday’s key UK inflation figure failed to stop the Pound from falling despite scoring above expectations. A negative Eurozone economic sentiment report similarly did little to undermine the Euro.
GBP/EUR hit a July high of 1.2097 last Friday, but since then has been unable to hold any level above 1.20. While the pair briefly hit 1.2010 on Monday, it slipped below the week’s opening levels of 1.1955 on Tuesday and was trending in the region of 1.1920 before the end of the session.
Pound (GBP) Sold from Best Levels on Profit Taking
Markets appeared to be unwilling to continue buying into the Pound on Tuesday, despite a higher-than-expected inflation report for June.
Analysts had previously feared that the UK’s Consumer Price Index (CPI) scores would struggle in June as the EU Referendum vote approached and the fears of a potential Brexit worsened.
However, monthly inflation held at 0.2% in June while the yearly figure beat expectations of 0.4%, improving from 0.3% to 0.5%. The increase was likely due to Euro 2016-related flight fares, according to Reuters;
‘British inflation rose more than expected in June and matched one of the highest rates seen over the last year and a half, boosted by a surge in airfares as soccer fans flocked to France for the Euro championships. …
The data was collected almost entirely before Britons voted to leave the EU on June 23, a result that caused Sterling to plunge and raised expectations that inflation will rise sharply as Britain pays more for imported goods.’
After last week’s impressive Sterling rally however, investors were hesitant to continue piling into the Pound on Tuesday. Instead, markets opted to devalue the currency, profit-taking from its recent highs. A downgrade to the UK’s growth forecasts from the International Monetary Fund (IMF) also weighed on the currency.
Euro (EUR) Sturdy Despite Bearish ZEW Survey Results
The Euro held its ground against most major currencies on Tuesday as it benefitted from risk-off cross flows. Investors flocked away from riskier assets like the Australian and New Zealand Dollars (as well as the Pound, arguably) towards ‘safe-haven’ currencies.
As a result, the Euro was able to gain against many riskier currencies. The shared currency still dropped against traditional ‘safe-havens’ such as the US Dollar and Swiss Franc.
Tuesday’s underwhelming ZEW survey results did little to influence Euro movement. The survey of Germany’s current situation dropped from 54.5 to 49.8, despite being expected to only slip to 51.8.
Economic sentiment surveys were even more disappointing. German sentiment fell from 19.2 to -6.8, while Eurozone sentiment plummeted from 20.2 to -14.7.
Other poor Eurozone data included the news that the European Commission has cut its Eurozone growth forecast in response to the UK’s Brexit news. The Financial Times reported;
‘In its first economic analysis following the Brexit vote, the Commission said the referendum decision would “reverberate across the rest of the EU”, forcing it to pare back its growth forecasts over the next two years, writes Mehreen Khan.
In its worst case scenario, which forecasts prolonged market jitters and dramatically reduced investment, the 19-country bloc would see growth trimmed to 1.5 per cent this year and 1.3 per cent in 2017.’
Despite this news, the Euro remained solid on Tuesday as the Pound selloff continued well into the afternoon.
Pound Euro Exchange Rate Forecast: Will Data Affect GBP/EUR Movement?
The Pound’s movement has been entirely dominated by Brexit-influenced news and uncertainties in recent weeks, and if Tuesday’s data was any indication this looks likely to continue.
Wednesday’s session sees the release of British employment figures. However, as this data was collected in May and June, it is unlikely to indicate the state of the job market since the Referendum.
Instead, the GBP/EUR exchange rate is more likely to be influenced by Thursday’s European Central Bank (ECB) policy meeting.
Investors do not currently expect the bank to introduce any new stimulus measures in its July meeting, and bets that this was possible lightened further after last week’s unexpected Bank of England (BoE) policy freeze.
Markets do, however, expected the ECB to finally discuss the Brexit result in more detail – as well as indicate the possible effects it could have on the Eurozone economy and future monetary policies.
If the bank is optimistic despite the Brexit, the Euro would likely soar against the Pound. However, if ECB President Draghi hints that the ECB will have to react with new stimulus measures in the future, the Euro will plummet.