GBP/EUR Exchange Rate on Uptrend Ahead of ECB Meeting
Demand for the Euro (EUR) weakened in anticipation of another dovish European Central Bank (ECB) meeting on Thursday morning, even though investors expect no change in monetary policy to be announced. As a result the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher in the region of 1.2692.
Pound (GBP) Exchange Rates Boosted by Hawkish BoE Comments
Bank of England (BoE) policymaker Ian McCafferty took a slightly more hawkish tone on Wednesday with regards to monetary policy, commenting that he will vote to raise interest rates again ‘at some stage’. Although this does not materially alter the outlook of the BoE, or improve the chances of a nearer-term rate hike, the Pound Sterling to Euro (GBP/EUR) exchange rate nevertheless ended the European session trending higher in the region of 1.2686.
- Pound boosted after poll suggested ‘Remain’ camp lead
- GBP/EUR climbed to three-week high on Greek bailout worries
- UK average weekly earnings disappointed sharply on the downside
- Euro volatility forecast with April ECB policy meeting
‘Brexit’ Debate Continued to Dominate Movement of GBP/EUR Exchange Rate
Markets were spooked at the start of the week by a Treasury report suggesting that the UK economy could be -6% smaller by 2030 in the event of a ‘Brexit’ than it would be if the UK remained in the EU. However, as investors were inclined to believe that this stark warning could swing voters towards the ‘Remain’ camp the Pound (GBP) soon recovered from its initial slump. Sentiment was equally shored up by the news that ‘Remain’ had indeed pulled further ahead of ‘Leave’ in a telephone poll conducted for the Telegraph, having extended its lead by nine points.
The appeal of the Euro (EUR) weakened on Tuesday as markets returned to a more risk-positive footing, encouraged by a sharp rebound in the price of oil. This saw the impact of stronger ZEW Economic Sentiment Surveys limited, in spite of both Germany and the Eurozone showing higher levels of confidence in April. Investors remained primarily concerned with the ongoing talks between Greece and its creditors, however, as the possibility of debt relief appeared to be tied to the passing of further conditional austerity arrangements. With an imminent agreement looking unlikely the Pound Sterling to Euro (GBP/EUR) exchange rate climbed to a three-week high of 1.2681.
Pound (GBP) Weakened after US Treasury Secretaries’ Warning & Poor UK Wage Data
German Producer Prices proved substantially more disappointing on Wednesday morning, with prices contracting from -3.0% to -3.1% on the year in March despite hopes for a modest improvement. This weaker showing did not appear to bode overly well for the inflationary outlook of the Eurozone’s powerhouse economy, encouraging speculation that further European Central Bank (ECB) easing could be prompted in the near future.
Demand for the Pound weakened after a group of eight former US Treasury Secretaries warned of the potentially severe consequences of UK voters taking ‘a big risk’ and opting to leave the EU. The intervention demonstrated an almost unprecedented consensus between Republicans and Democrats, lending some additional weight to the comments. Writing in the Times, the group cautioned:
‘While Britain will remain an attractive centre for finance even if Britain exits, it should not take for granted its global primacy when it is no longer the gateway to Europe.’
Sterling extended its slump against the majority of the majors in response to the latest UK employment data, as average weekly earnings growth unexpectedly slowed in the three months to February. Rather than showing accelerated wage growth as expected the figure plunged from 2.1% to 1.8%, suggesting additional weakening within the economy.
GBP/EUR Exchange Rate Forecast: ECB Dovishness May Fail to Dent Euro
The Euro is expected to see particular volatility on Thursday as the ECB holds its latest policy meeting. While additional monetary loosening is highly unlikely at this juncture, President Mario Draghi could be inclined to emphasise the possibility of lower interest rates in an attempt to talk down the single currency. However, with hawkish Bundesbank President Jens Weidmann regaining his vote on policy and markets becoming increasingly sceptical of the power of central banks this may fail to convince traders.
UK Retail Sales and Public Sector Net Borrowing reports are also due for release tomorrow, which could undermine Sterling further if the domestic economy shows additional signs of slowing. Stronger consumer confidence or lower government borrowing could encourage the GBP/EUR exchange rate to trend higher, however.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped around 1.2640, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains in the region of 0.7911.