The Pound Euro exchange rate plummeted further from the week’s opening levels on Thursday, dropping and holding below the key level of 1.18 as European Central Bank (ECB) President Draghi mirrored July’s policy meeting by maintaining a ‘wait and see’ approach. Are further losses on the horizon?
- Pound Euro Exchange Rate Dips Below 1.18 – Will GBP/EUR slide further still?
- ECB Leaves Policy Frozen – Euro soars as bank maintains confidence in previous stimulus
- Update: UK Trade Balance Lightens – But not as much as some forecasters predicted
- Forecast: What’s Next for GBP/EUR? – Pair could continue current downtrend
Pound Euro Exchange Rates Fluctuate on Friday
The Pound to Euro exchange rate fluctuated higher on Friday afternoon, but lacked the drive to advance to the level of 1.1850 and beyond as the Euro remained sturdy following Thursday’s ECB meeting and Friday’s data failed to inspire Pound demand.
Friday morning’s UK datasets included July’s update to Britain’s trade deficit, as well as July construction output figures. While construction beat expectations, Sterling was held back by disappointment that the trade deficit had only lightened from -£5.573b to -£4.502b.
Analysts had previously suggested that a weak Pound could cause more substantial deficit improvements. Regardless, news that the deficit still lightened helped Sterling to hold its ground throughout the day.
Next week’s main event will be Thursday’s Bank of England (BoE) policy meeting. In the bank’s first meeting since it introduced an aggressive stimulus package in August, analysts currently believe that the bank will take on a ‘wait and see’ attitude.
BoE Governor Mark Carney claimed on Wednesday that the bank’s easing measures had helped the British economy’s growth in August, but how the bank reacts to next Tuesday’s inflation figures could be a key influence in next week’s Pound Euro exchange rate.
(Previously updated 08:47 09/09/2016)
The Pound Euro exchange rate was left trending around the 1.18 level ahead of the release of the UK’s latest trade and construction output reports. The pairing was little changed following the publication of Germany’s own trade figures, despite exports falling by -2.6% and imports sliding -0.7%. Respective gains of 0.3% and 0.5% had been forecast.
(Previously updated 07:00 09/09/2016)
The GBP/EUR exchange rate was already on track to complete its first week of losses since mid-August before the ECB meeting, as the pair had lost almost a cent from the week’s opening levels of 1.1915 by Thursday morning. Following the ECB’s meeting, Pound Euro extended its losses, hitting a one-week-low of 1.1766.
Pound (GBP) Exchange Rates Weaken as Economic Hopes Fade
Earlier this week Pound (GBP) exchange rates were riding high as a slew of reports containing data collected in August impressed markets, indicating that the British economy had experienced a quick rebound following July’s economic downtick.
These included PMIs published by Markit, with some prints seeing their biggest jumps in activity in years. However, hopes that this would be a lasting trend of strong growth waned on Wednesday as investors began to perceive Sterling’s rally as being overdone.
Wednesday’s July manufacturing production report revealed that the manufacturing sector had performed even more badly in July than previously thought, with the score coming in with a sharp contraction of -0.9% month-on-month. This brought the year-on-year score to 0.8%.
The Pound was weakened further on Wednesday by comments made by Bank of England (BoE) Governor Mark Carney.
In his first major statements since the historic stimulus measures introduced at the beginning of August, Carney argued that these new measures were and still are necessary, despite the August rebound. The Guardian reported;
‘Carney said: “I absolutely feel comfortable with the decision I supported and the committee took in August to supply monetary policy stimulus.”
He said the Bank had expected the main sectors of Britain’s economy to bounce back after the initial impact of the referendum in July, as shown in a series of purchasing managers’ indexes published in recent days.’
As a result of Wednesday’s news, Sterling’s bullish run faded as markets were reminded that Britain’s growth was still taken off-course after June’s Brexit vote and the Pound Euro exchange rate reversed some of its recent gains.
Euro (EUR) Buy-up Continues as ECB Avoids Talk of Further Stimulus
Euro (EUR) exchange rates began strengthening on Wednesday despite mixed Eurozone ecostats, as investors began to readjust their positions on the currency ahead of Thursday’s European Central Bank (ECB) policy decisions.
The shared currency had previously been undermined by August’s Eurozone data reports, including PMIs that revealed Eurozone economic activity was unexpectedly worse in August than forecast.
However, on Thursday the European Central Bank calmed some investors (and disappointed others) by once again maintaining its old ‘wait and see’ approach, with ECB President Mario Draghi reaffirming that the current stimulus measures were enough to stoke gradual Eurozone growth.
Investors were largely undeterred by brief statements from Draghi indicating that the shock of the Brexit vote may have slowed Eurozone growth. According to the ECB’s Twitter;
‘Draghi: For the time being the changes are not so substantial to warrant a decision to act. Our monetary policy is effective.
There is no question about the will to act, the capacity to act, and the ability to do so
We are monitoring developments in inflation expectations very closely and stand ready to act’
Pound Euro Exchange Rate Forecast: GBP Unlikely to Regain Strength Unless UK Deficit Data Impresses
The European Central Bank (ECB) repeated sentiments seen in July during Thursday’s meeting, meaning investors will have to wait longer before the ECB’s next action is taken.
Many analysts believe more easing will be introduced in 2016, so in October or December. This will be heavily influenced by early Q3 data publications.
The Pound to Euro exchange rate could continue trending with a downward bias until the end of the week unless Friday’s data is surprising enough to cause a shift in movement.
UK data due for publication on Friday morning includes July’s update to Britain’s trade deficit figures, which are expected to have softened since June.
While Britain’s economic activity was hit by Brexit vote shock in July, there has been wide speculation that the lower value of the Pound could cause dramatic shifts in Britain’s trade data.
If the deficit lightens by more than expected, this could bolster sentiment for the UK’s economy slightly as well as strengthen the Pound.
However, unless UK trade data impresses and German trade data disappoints, it is unlikely that GBP/EUR will return to the week’s opening highs. As a result, the Pound Euro exchange rate is forecast to end this week lower.