The Euro to Pound Sterling (EUR/GBP) exchange rate has begun to fall as European Central Bank (ECB) measures weaken the shared currency and the Pound claws back from the pair’s sixteen-month-high last week.
Lack of European Data Has EUR/GBP Caught in Fed’s Cross-Flows
The European Central Bank (ECB) has been attempting to weaken the Euro in recent months to stimulate the Eurozone economy and encourage public spending. Investors were reminded in last week’s Economic Bulletin that the bank was serious about its easing measures and was capable of further easing, successfully beginning to weaken the Euro and adding to the volatility of the EUR/GBP pair.
As a result, the increasingly volatile pair has been caught up in global affairs more than usual. There has been no vital Eurozone data or British data that can inspire movement recently either due to holiday breaks.
Perhaps the biggest influence for the EUR/GBP exchange rate this week has been investor reaction to North American data and the Federal Reserve’s misperceived shift in tones. Poor inflation data for the US released on Monday made investors worry that interest rates would not be hiked in April, as some policymakers suggested last week. Yesterday’s speech from Fed Chairwoman Janet Yellen reminded investors that the central bank was not in a hurry to hike interest rates.
While such announcements would normally inspire the risky commodity bloc currencies first, thin holiday trade on Monday encouraged investors to see the weakened and unmoving Pound as appealing against the US Dollar, sending the Pound up against rivals like the Euro.
Investors buying the Pound as they sell the US Dollar en masse is thought to be a primary reason for Sterling’s current strength against the Euro.
Bank of England (BoE) Begins to Discuss Contingency Measures for a Potential ‘Brexit’
The Bank of England’s Financial Policy Committee (FPC) published a statement yesterday morning comprising of a series of upcoming stresses and concerns to the UK economy in the upcoming year.
The publication begins to exercise the possibility that Britain could perform a ‘Brexit’ after the EU referendum on the 23rd of June, now under 3 months away.
The central bank warned that if Britain were to leave the EU, a boom of panic borrowing and risk purchasing would occur. As a result, measures have been introduced to limit the amount of lending and buy-to-let mortgages that can be made, to allow for more long-term damage control.
The BoE also announced that Britain’s economic uncertainty could even lead to a Sterling crisis or another credit crunch.
However, the already volatile Pound did not suffer considerably from the event, and somewhat continued its current rally against the weakening Euro. After the EUR/GBP’s sixteen-month-high of 0.7943 less than a week ago on the 24th, the shared currency began to fall against Sterling after Easter weekend ended. The pair fluctuates and is currently up around 0.2%, trending around 0.7867.
After being smashed by a series of negative events, ‘Brexit’ concerns and a dim outlook for the UK economy, the Pound is now in its most volatile state in six years against the Euro. As a result, the Pound is more likely to be moved by global economic events while domestic events weaken it further.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Incoming Data to Strengthen Euro?
With vital Eurozone data finally due for release in the coming days, analysts and investors may get a clearer picture regarding the impact of ECB attempts to weaken the Euro.
German CPI is due early this afternoon, being forecast to have risen month-on-month and year-on-year. Unsurprisingly, the most pivotal economy in the EU is likely to cause waves in the Eurozone if data prints positively, especially if above forecast.
German retail sales and unemployment data prints are due for release tomorrow morning, followed by general Eurozone CPI later in the day and Eurozone unemployment on Friday.
The large amount of vital Eurozone data due this week is likely to have some sort of influence on the Euro’s strength depending on whether the data is positive or not. Negative data would of course continue to weaken the Euro and the EUR/GBP pair would become even more volatile, but positive data may illustrate how effective the ECB’s measures have been in muting Euro strength.
UK data due for release this week includes consumer confidence, GDP, mortgage approvals and Manufacturing PMI, all due on Thursday and Friday. Not as important as the Eurozone data with the potential to be overshadowed by political news or dovish economic attitudes, meaning the Euro is more likely to take point in this pair.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7867 while the Pound Sterling to Euro (GBP/EUR) exchange rate trends in the region of 1.2710.