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Pound Euro Exchange Rate Continues to Fluctuate after Central Bank News

  • Pound Euro Exchange Rate Remains at 1.13 – Pair near week’s opening levels on Thursday
  • Sterling Recovers on UK Data – Wages and retail sales beat expectations
  • Update: Central Banks Offer no Surprises – Both Pound and Euro weaken
  • Forecast: Brexit Uncertainty to Persist – Brexit and UK growth in focus next week

Update 14:50 BST 14/12/2017:

Thursday’s Bank of England (BoE) and European Central Bank (ECB) meetings had no notable effect on the Pound Euro exchange rate outlook. Both banks left monetary policy frozen as expected.

The Bank of England acknowledged that progress had been made in Brexit negotiations but asserted that Brexit remained the largest uncertainty in the UK economic outlook.

Investors hoping for the bank to take a slightly more hawkish tone were disappointed, as the bank maintained its view that UK interest rates would only rise gradually over the next few years.

The European Central Bank’s tone was cautious too, but ECB President Mario Draghi was optimistic.

He noted that while the bank believes Eurozone inflation will remain below target until 2020, ‘all in all the revision of the macroeconomic projections are going in the right direction’.

The ECB upgraded its Eurozone growth forecasts due to strong growth for the bloc in recent months.

Overall, Draghi’s caution on inflation and monetary policy made the Euro less appealing, so the Pound Euro exchange rate was able to hold away from its weekly lows.

[Published 10:41 BST 14/12/2017]

Sterling support has been building in recent sessions due to some stronger than expected UK ecostats, but investors are still hesitant to buy up the Pound Euro exchange rate ahead of Thursday’s highly anticipated Bank of England (BoE) and European Central Bank (ECB) decisions.

For most of the week, GBP EUR has been trending below the week’s opening levels of 1.1370. The pair has generally trended in the region of 1.1330, but on Thursday morning the pair trended nearer the week’s opening levels again.

Pound (GBP) Supported ahead of Bank of England (BoE) Decision

Demand for the Pound has been stronger since Wednesday and its recovery built steam on Thursday, thanks to a few better than expected UK ecostats.

Wednesday saw the publication of Britain’s October job market results, which were mixed. While UK employment fell for the second consecutive print, investors were relatively happy with the latest wage growth results.

UK wage growth was forecast to remain at 2.2% excluding bonuses, but unexpectedly rose to 2.3%. The figure including bonuses improved to 2.5% as expected. Accelerating wages boosted market hopes that wages would catch up to inflation at some point in the New Year.

Thursday morning’s data followed with November’s UK retail sales results, which came in well above expectations in all major prints and indicated that Black Friday 2017 had been a success for domestic retailers.

The November retail sales figure was forecast to come in at 0.4%, but instead jumped to 1.1% while the previous figure was revised higher from 0.3% to 0.5%. The yearly figure smashed 0.3% forecasts and printed at 1.6%.

Some analysts expressed concern that the increase in Black Friday activity, coupled with the cold December weather, could lead to some weaker retail activity in December though. According to Richard Lim from Retail Economics;

‘These figures confirm that online won the Black Friday battle. Online sales growth dwarfed that of in-store as shoppers took advantage of Black Friday discounts, particularly in electricals.

However, some retailers will be concerned that the Black Friday boost has come at the expense of traditional Christmas trading. Many consumers are likely to have pulled forward their seasonal purchases to make their budgets stretch further this Christmas.’

Euro (EUR) Slips Despite Impressive Eurozone PMIs

Markit’s December PMI projections for the Eurozone were published on Thursday morning and beat expectations in many major prints, indicating that the Eurozone economy was on track to round 2017 out strongly.

Germany’s PMIs beat expectations in all major prints, with services at 55.8, manufacturing at an impressive 63.3 and the composite print at 58.7.

Overall, the Eurozone’s PMI projections all beat market expectations too. Manufacturing rose from 60.1 to 60.6, services from 56.2 to 56.5 and the composite figure from 57.5 to a solid 58.

According to Chris Williamson, Markit’s chief business economist;

‘The Eurozone economy is picking up further momentum as the year comes to a close, ending its best quarter since the start of 2011. The PMI is signalling an impressive 0.8% GDP increase in the fourth quarter, with accelerating growth seen in both Germany and France, where fourth quarter growth rates of 1.0% and 0.7-0.8% are indicated respectively.

… The Eurozone upturn is being led by a booming manufacturing sector, with a record PMI seen in December, but stronger domestic demand is also helping drive faster service sector growth.’

Despite recent data continuing to indicate that the Eurozone’s economy is faring strongly however, Euro investors were hesitant to buy the shared currency ahead of Thursday afternoon’s European Central Bank (ECB) policy decision.

Pound Euro Exchange Rate Forecast: Central Banks in Focus

Thursday morning’s UK and Eurozone data likely would have been more influential to Pound Euro exchange rate trade if there wasn’t more important news due later in the day.

Both the Bank of England (BoE) and the European Central Bank (ECB) will be holding December policy decisions early this afternoon.

Pound investors are hoping that the Bank of England will take a more hawkish stance than expected in its policy decision, due to recent higher than expected UK inflation and wage growth data.

If the BoE is more hawkish, the Pound is likely to surge towards the end of the week and will likely end higher versus the Euro.

Euro investors, on the other hand, don’t expect the ECB to take a more hawkish stance due to recent Eurozone inflation stats. In fact, if the bank asserts its view that inflation will fall in 2018, the Euro is likely to see weaker trade, making it easier for GBP EUR to advance.

Either way, Thursday afternoon’s central bank news is likely to influence the direction of Pound Euro trade for the remainder of the week.

GBP EUR Interbank Rate

At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1355. The Euro to Pound exchange rate traded at around 0.8805.