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Pound Euro Exchange Rate to React to April’s Inflation Data on Tuesday

  • Pound Euro Exchange Rate Falls Back to 1.17 – Fails to hold multi-week highs
  • Bank of England News Weakens Pound – Investors disappointed by cautious outlook
  • GBP Forecast: UK Inflation Data on Tuesday – Employment stats on Wednesday
  • EUR Forecast: Eurozone Growth Projections on Tuesday – Inflation follows on Wednesday

Pound Euro Exchange Rate Slips on Monday

Despite a lack of influential data, the Pound Euro exchange rate slipped slightly on Monday. GBP EUR briefly hit a low of 1.1753, its worst levels since the first week of May.

News that French President Emmanuel Macron had picked Edouard Philippe as his prime minister bolstered Euro demand slightly later in the day.

Investors are more focused on Tuesday’s upcoming session, which will see the publication of many key ecostats from Britain and the Eurozone.

The results of Tuesday’s data is likely to set the tone for Pound Euro trade for most of the week, but it’s worth noting that key data will also be published on Wednesday and Thursday.

[Previously updated 12:38 BST 15/05/2017]

The Pound Euro exchange rate ended up ending last week’s trade session slightly below its opening levels despite the big gains earlier in the week.

Monday morning once again saw GBP EUR make an advance attempt that was cut short. The pair advanced to 1.18 before falling back to the weekend’s opening level of 1.1790.

The Euro was kept afloat by the day’s Eurozone data which was generally optimistic.

Italy’s final April Consumer Price Index (CPI) figures saw inflation beat expectations of 1.8% year-on-year and rise from 1.4% to 1.9%.

However, confirmation that Greece had once again entered recession kept the Euro from pushing GBP EUR any lower.

[Published 06:00 BST 14/05/2017]

Last week saw the Pound Euro exchange rate drop as traders reacted with disappointment to the Bank of England’s (BoE) latest UK 2017 outlook. In the coming week focus will be on UK inflation data and Eurozone growth data.

GBP EUR began last week trading at the level of 1.1801 and hit a high of 1.1923 on Wednesday before tumbling closer to the week’s opening levels again.

Pound (GBP) Sold on Bank of England (BoE) Disappointment

After performing solidly for most of the week, the Pound plunged on Thursday after the day’s Bank of England (BoE) announcements and continued to trend lower until the end of the week.

Despite a relatively optimistic long-term outlook from the BoE, as well as indications that the bank could hike UK interest rates before late-2019, investors were disappointed with the short to mid-term outlook.

The Bank of England downgraded its 2017 UK growth forecast from 2% to 1.9% and upgraded its inflation forecast.

In an indication that high inflation was not enough to pressure the bank into hiking rates, BoE Governor Mark Carney defended the bank’s ultra-loose monetary policy by saying it was necessary to help citizens get into work, despite the threat of rising inflation.

Investors were also disappointed by the lack of hawkishness from other policymakers.

Monetary Policy Committee (MPC) members voted 7-1 to keep UK interest rates frozen, with the single dissenter being hawkish Kristin Forbes, the same outcome as March’s decision.

Euro (EUR) Rises Thanks to Solid German Data

Demand for the Euro improved towards the end of last week as the week’s profit-taking selloff cooled and investors began to return to the shared currency.

The currency was bolstered late in the week by the latest Eurozone ecostats. While they weren’t as strong as investors hoped, they still indicated that the economy was performing strongly in early 2017.

Friday’s most influential dataset was Germany’s Q1 Gross Domestic Product (GDP) results. The yearly growth rate is projected to be 1.7% as expected and the previous figure was revised higher to 1.8%.

While Germany’s quarter-on-quarter growth rate came in a 0.6%, slightly lower than the expected 0.7%, it still indicated that Germany was the fastest-growing major economy of 2017 thus far.

Joshua Mahoney, a market analyst from IG, believes the growth data improved the mood in Eurozone markets;

‘This morning has started in positive fashion for the Eurozone, in what is fast becoming the go-to growth driver of the western world. The outperformance of German Q1 GDP should have come as no surprise given the positive signs coming out of the industrial powerhouse over recent months.

With the French hoping to strengthen their economy in the wake of Macron’s election victory, there appears to be an end to the sight of the protracted downturn seen in the Eurozone since the 2007 financial crisis.’

Friday also saw the publication of Germany’s final April Consumer Price Index (CPI) results, which met expectations of 2% year-on-year.

Pound Euro Forecast: Key UK Inflation Data Due Next Week

Next week’s British economic calendar will be a lot busier and data is likely to have a strong influence on the Pound Euro exchange rate.

Tuesday will see the publication of Britain’s April Consumer Price Index (CPI). Investors have been keeping a close eye on UK inflation in the hopes it eventually puts pressure on the Bank of England (BoE) to tighten UK monetary policy.

However, the BoE has maintained in recent months that it will keep UK monetary policy ultra-loose for the sake of job creation rather than tackling inflation. As a result, market reaction may be muted even if UK inflation beats expectations.

Tuesday will also see the publication of the Eurozone’s key Q1 Gross Domestic Product (GDP) projection. This second projection is expected to come in closely to the first.

Italian growth projections for Q1 will also be published on Tuesday, as well as ZEW’s economic sentiment surveys for May.

Wednesday will follow with UK employment results from March and jobless claims figures from April. Over in the Eurozone, final April inflation results will be published.

Later in the week, Britain’s retail sales stats from April and the Eurozone’s consumer confidence figures from May will be published and could also have an effect on the Pound Euro exchange rate.