Lack of UK Price Growth in May Brings GBP/EUR Exchange Rate Losses
The Pound (GBP) has fallen against the Euro (EUR) and most other peers today, following the release of disappointing UK inflation rate news.
This decline hasn’t put the GBP/EUR exchange rate at a historic low, but has erased earlier gains seen for the pairing.
Against expectations for a faster pace of annual acceleration in May, this morning’s figures have instead shown a reprint at 2.4%.
This result has been so disappointing because it means no additional pressure will be put on the Bank of England (BoE) to consider higher interest rates.
The jury is still out on a BoE interest rate hike in 2018, but these inflation rate stats have reduced the odds for a rate hike at the next meeting in August.
GBP/EUR Exchange Rate Decline Worsened by CBI’s Warning
Another factor lowering confidence among Pound traders today has been a gloomy forecast from Confederation of British Industry (CBI) President Paul Drechsler.
Mr Drechsler has taken a dim view on post-Brexit trade, predicting that UK car manufacturing could suffer if a customs union is not agreed:
‘If we do not have a customs union, there are sectors of manufacturing society in the UK which risk becoming extinct.
‘Be in no doubt, that is the reality. There’s zero evidence that independent trade deals will provide any economic benefit to the UK that’s material. It’s a myth.’
Euro to Pound (EUR/GBP) Exchange Rate Rises ahead of Key ECB Meeting
The Euro (EUR) has advanced against the Pound (GBP) and peers like the US Dollar today, as traders wait for Thursday’s European Central Bank (ECB) meeting.
The odds of a 2018 ECB rate hike has been raised by comments from ECB official Peter Praet, who suggested that quantitative easing (QE) might be wound down.
A change of tone from ECB policymakers isn’t guaranteed, however, so for now EUR/GBP exchange rate gains have been limited.
ING economists have touched on the issue, stating:
‘The uncertainty about the Eurozone’s economic performance ahead of QE decision time makes tomorrow’s ECB meeting a nail-biter.’
Pound to Euro Exchange Rate Forecast: Will GBP/EUR Exchange Rate Rise on Retail Sales Growth?
Pound Sterling (GBP) might be able to recover against the Euro (EUR) in the near-future, when UK retail sales data for May is released on Thursday morning.
The readings are predicted to show major growth for year-on-year readings, compared to May 2017.
Although a slower pace of month-on-month sales growth is predicted, the Pound to Euro (GBP/EUR) exchange rate could still rise if the annual readings impress.
Thursday’s Eurozone data will be considerably more high-impact, consisting of a European Central Bank (ECB) monetary policy meeting in the afternoon.
If ECB officials hint at tighter monetary policy in the future, the EUR/GBP exchange rate could rise sharply.
Euro traders are looking for an ECB interest rate hike. Tighter monetary policy, via a wind down of quantitative easing (QE), would be a major step towards this.