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Pound Euro Exchange Rate Near Lows As UK Spring Budget Fails to Support GBP and EUR is Boosted by ECB

  • Pound Euro Exchange Rate Slips to 1.14 – GBP EUR at worst levels since January
  • UK Retail Sales Continue to Slow ­– Disappointing retail data from BRC causes GBP selloff
  • EUR Update: ECB’s Draghi Surprisingly Hawkish – Euro up on Thursday
  • Forecast: UK Trade Deficit on Friday – Lighter deficit could support GBP

Pound Euro Exchange Rate Plunges after Hawkishness from ECB’s Draghi

Following Thursday’s press conference from European Central Bank (ECB) President Mario Draghi, the Pound Euro exchange rate slumped even further.

GBP EUR finally slipped below support levels at 1.15 to a 7-week-low of 1.14 after Draghi’s surprisingly hawkish comments bolstered demand for the Euro.

Draghi confirmed that the ECB had updated its 2017 growth and inflation forecasts for the Eurozone. The inflation outlook had jumped from 1.3% to 1.7%.

However, the biggest surprise was that the ECB dropped the usual pledge to use ‘all the instruments at its disposal’ from its statement. Draghi indicated that this was because the ‘sense of urgency’ in Eurozone deflation risks had largely disappeared.

Analysts are likely to entertain the idea that the ECB may finally edge away from ultra loose monetary policy in the coming year as a result of today’s meeting.

[Previously updated 12:52 GMT 09/03/2017]

The Pound Euro exchange rate rose slightly from its worst weekly levels at midday on Thursday following the European Central Bank’s (ECB) March policy decision.

As predicted, the bank left Eurozone monetary policy frozen. This caused some traders to sell the Euro, which had been firming for most of the morning and had pushed GBP EUR down to key support levels at 1.15.

However, following Wednesday’s uninspiring UK Budget news, the Pound was unable to capitalise on this brief Euro weakness and instead GBP EUR simply returned to the day’s opening levels.

The Euro could weaken further on Thursday afternoon if ECB President Mario Draghi disappoints markets in his upcoming press conference with a more dovish-than-expected tone.

[Previously updated 16:43 GMT 08/03/2017]

On Wednesday afternoon the Pound Euro exchange rate trended near its worst levels in over a month once again, as the day’s UK Spring Budget 2017 offered little new or exciting to Sterling traders.

Once the Budget was over, investors began to refocus on Thursday’s upcoming European Central Bank (ECB) meeting. However, like the Budget analysts do not expect any great shocks from the ECB.

Some speculate the ECB will begin to take a slightly less cautious tone, which would boost the Euro if it does indeed happen. However, if the bank takes the usual cautious tone as most expect, GBP EUR may not see a big shift in direction on Thursday.

During Wednesday’s UK Budget, Chancellor Hammond indicated that the government would increase spending on free schooling, grammar schooling and technical education. It was also announced that self-employed citizens would see increases in national insurance tax.

[Previously updated 12:57 GMT 08/03/2017]

Wednesday morning trade saw little real change in the movement of the Pound Euro exchange rate as investors observed the day’s UK Spring Budget 2017 proceedings.

While no massive surprises are expected from the Budget, any notable news on UK infrastructure investment plans could boost demand for the Pound.

GBP EUR recovered slightly from its weekly lows when UK Chancellor Philip Hammond began his Budget speeches, but the pair remained relatively close to its multi-week lows at the time of writing.

The morning’s January German industrial production results gave the Euro a slight boost by beating expectations in both prints, but nothing significant.

[Published 06:00 GMT 08/03/2017]

The Pound Euro exchange rate continued to slip throughout Tuesday’s European session despite mixed Eurozone ecostats, leaving the pairing languishing at a seven-week low. This was partly due to lingering Brexit jitters as well as the latest underwhelming UK retail sales data from BRC, although GBP weakness was also the result of speculation surrounding today’s Spring Budget.

The GBP USD exchange rate also slipped to a new 7-week low, hitting 1.21.

GBP EUR began this week trending in the region of 1.15 and has remained below the level of 1.16 since then. If GBP EUR continues to fall in the coming week, it could slip down to 1.14 for the first time since January.

Pound (GBP) Weakened by Indications in Slowing Retail Activity

The main cause for the Pound’s weakness on Tuesday was the latest retail sales report from the British Retail Consortium (BRC).

The report came in at -0.4% for the three months into February year-on-year. They also indicated that non-food retail sales dropped for the first time since 2011.

Following data from recent months indicating that Britain’s retail sector was feeling a pinch from increases in UK consumer prices, this report only served to increase fears that the UK retail sector would slow significantly in 2017.

As retail is a vital part of Britain’s services sector (which accounts for most of UK GDP) this has increased concerns that UK growth itself will slow throughout the year. February’s services PMI from Markit indicated as such, by coming in lower-than-expected last week.

Analysts have suggested that the BRC’s retail figures do indeed indicate that the UK economy may not be in for a smooth 2017. According to Samuel Tombs from Pantheon Macroeconomics;

‘The BRC’s survey provides more evidence that the surge in retail sales in the second half of last year reflected consumers bringing forward purchases from 2017, because they anticipated price rises. The weakness was concentrated again in non-food sales, which fell by 0.2% on a total basis in the three months to February, the lowest growth since November 2011.’

Euro (EUR) Held Back by Drop in German Factory Orders

While the Euro was able to advance against the Pound comfortably on Tuesday, its gains were limited throughout the day due to a lack of fresh supportive factors in the Euro.

The day’s German factory orders report from January came in well below expectations, plummeting from 5.2% to -7.4% month-on-month and missing the projected -2.5%. This was the worst monthly decline since January 2009.

The year-on-year result also contracted at -0.8%, despite being predicted to merely slow to 4.3%.

Analyst Tim Worstall from Forbes commented on the disappointing factory results, saying that people shouldn’t read too much into one month’s figures alone. However;

‘It’s much, much, too early to be declaring anything at all on the basis of one month’s numbers. But if the wheels do come off the German economic bus this is where we will see it, declines in industrial production, especially of durable goods.’

The Euro gained no notable support from the day’s final Eurozone Q4 Gross Domestic Product (GDP) results. Quarter-on-quarter growth came in at 0.4% as projected, while yearly growth printed a solid and expected 1.7%.

Pound Euro Exchange Rate Forecast: UK Budget in Focus on Wednesday

The Pound to Euro exchange rate is unlikely to recover from its weekly lows on Wednesday unless the UK Budget 2017 gives traders a pleasant surprise.

Analysts generally expect the Budget will cover the UK government’s grammar school plans as well as potentially tax increases.

However, if UK Chancellor of the Exchequer Philip Hammond impresses traders with unexpected infrastructure or investment plans, the Pound could see an increase in demand.

Besides the UK Budget, the day will be relatively quiet in terms of ecostats. However, Germany’s January industrial production results may prove influential and could offer the Euro some support if they come in better than this week’s factory orders results have.

Euro investors will likely be more focused on Thursday’s session, which will see the European Central Bank (ECB) hold its March policy decision.

The ECB is predicted to leave rates frozen once more and maintain its usual cautiously optimistic tone while repeating that Eurozone inflationary pressures remain subdued.

However, any notable deviation from this rhetoric could influence the Euro and cause movement in the Pound Euro exchange rate on Thursday.