- Pound Euro Exchange Rate Forecast to Remain Limp – BoE news leads to slumped movement
- Bank of England (BoE) Leaves Policy Frozen – Mixed tone hints that further easing still possible
- Forecast: Current Movement Likely to Continue Until Next Week – GBP weak on Friday
- Forecast: First September Stats Due Next Week – Next Friday sees preliminary Eurozone PMIs
Pound Euro Exchange Rate Forecast to Trend Low Next Week
Friday’s session was predictably uneventful for the Pound Euro exchange rate forecast, as the day’s Eurozone data failed to inspire GBP/EUR movement at all.
Q2’s Eurozone labour costs report revealed that wage growth had slowed to 1.0% – its weakest level in almost six years. However, the low-influence report didn’t allow the Pound any relief as the pair once again slipped on Thursday’s Bank of England (BoE) news.
While GBP/EUR trended above the week’s worst levels towards the end of the week’s European session, the pair could be in for further falls in the coming week amid a relatively quiet economic calendar.
Unless British house prices or public finances data are particularly impressive, it’s unlikely that Sterling will mount a strong recovery attempt. It’s also possible that markets will buy the currency up from its lows in a limited profit-taking rally – but more likely that GBP/EUR will trend limply next week.
(Published 06:00 BST 16/09/2016)
Friday’s session is unlikely to alter this week’s Pound Euro exchange rate forecast, and markets will continue to react to Thursday’s data and Bank of England (BoE) news as the week draws to an end. As the BoE took on a mixed tone, the pair is unlikely to extend its weekly lows but could weaken regardless.
GBP/EUR began Thursday’s session trending at around 1.1790, still stuck below the week’s opening levels of 1.1813. Following the BoE’s Thursday policy decision, the pair began to slip towards the week’s low of 1.1706, fluctuating above the level of 1.1730 on Thursday afternoon.
Pound (GBP) Drops on Latest Bank of England (BoE) News
While initially holding its ground as markets held out for more a more optimistic tone from the Bank of England (BoE), Sterling was eventually sold off as investors reacted to the bank’s mixed minutes report.
August’s BoE meeting had seen the introduction of the bank’s historically aggressive package of economic easing measures that included an interest rate cut and new quantitative easing schemes.
In its September meeting, markets speculated that the bank would either play up August’s rebound in economic activity, or maintain a dovish stance and remind markets that further easing was still likely.
The bank’s actual tone was a combination of these factors. The bank’s policymakers opted unanimously to leave policy frozen in September, indicating that there was no urgency to introduce further easing just yet. Bloomberg reported on the details of the decision;
‘Bank of England policy makers indicated there’s still a chance of another rate cut this year as they assess the potential longer-term fallout from Britain’s decision to leave the European Union.
While the nine-member Monetary Policy Committee noted that recent near-term data had been stronger than anticipated since the Brexit vote, it couldn’t draw inferences for its longer-term forecasts. Even though initial reports had been “slightly to the upside” of projections published in August, officials said their view of the “contours of the economic outlook” hadn’t changed.’
As the bank lacked confidence that Britain’s economic uptick would last, the Pound dropped in value on Thursday afternoon.
Euro (EUR) Limp as August Inflation Meets Ultra-Low Projections
The Euro, on the other hand, has had a relatively uneventful week in terms of data as most of the week’s key data figures met preliminary scores published at earlier dates.
This was also true for the Eurozone’s final August Consumer Price Index (CPI) scores, which met preliminary results of 0.2% year-on-year and scored 0.1% month-on-month. The Financial Times reported;
‘The annual pace of inflation in the Eurozone has been confirmed at 0.2 per cent in August, equal to the pace in July.
Eurostat said the deepest deflation came from Croatia, Bulgaria and Slovakia, while the highest inflation was in Belgium, Sweden and Estonia.’
While it was widely unsurprising for the final inflation scores to meet projections, it did little to offer the Euro support as it confirmed that inflation had remained ultra-low – with the possibility of sparking further European Central Bank (ECB) stimulus speculation.
News that the Eurozone’s trade surplus had fallen lower than expected also weighed on the Euro on Thursday. The figure was expected to slip to 22b, but instead fell from 23.8b to 20b.
Overall however, the Euro was able to hold its ground as Sterling plunged following the BoE’s Thursday news.
Pound Euro Exchange Rate Forecast to End Below 1.18 This Week
With Friday lacking in any key British or Eurozone economic data, it’s highly unlikely that GBP/EUR will end this week’s session higher than the week’s opening levels, with the pair well on track to end lower.
On Thursday the pair was able to hold above its worst weekly levels of just around 1.1700, but if the Pound selloff continues during Friday trade it is possible for GBP/EUR to slip closer to this key low once again.
Low-influence Eurozone data, Q2 labour costs, is due for publication on Friday morning. This print is unlikely to influence GBP/EUR in any considerable way, so the Euro is likely to continue its current trend and hold its ground against Sterling until the end of the week’s trade.
As for next week, there isn’t much in the way of vital British datasets due for publication. The Eurozone, on the other hand, will see its first preliminary September datasets.
Preliminary September PMIs could cause considerable Euro movement next Friday, but until then the week’s Pound Euro exchange rate forecast could remain relatively near to current levels.