UK Spring Budget Statement in the Spotlight – What can we Expect for the Pound Euro (GBP/EUR) Exchange Rate?
The Pound Euro (GBP/EUR) exchange rate traded within a narrow band on Monday morning, limited by last week’s soft UK data releases and the monthly UK NIESR GDP estimate, but supported by European Central Bank (ECB) President Mario Draghi’s comments on Thursday downplaying the central bank’s decision to remove its easing bias.
This week is rather limited in terms of data for both nations, but markets will likely have their hands full tomorrow on the release of the UK’s Spring Budget Statement, with UK Chancellor Philip Hammond expected to provide an updated economic and fiscal outlook.
Whilst no notable changes are expected in terms of the budget, investors have begun to price in the possibility that the Office of Budgetary Responsibility (OBR) could update their economic forecasts.
Indeed, the UK’s economic outlook has grown slightly more positive since November last year, and with the OBR having undershot previous forecasts many are hoping that they might finally revise their forecasts higher.
Chief Economist at Deloitte, Ian Stewart, shared a similar sentiment, stating:
‘Since November, the economic outlook has brightened. Global growth has come in stronger than expected and government borrowing has fallen more quickly than forecast. […] On balance, I think they’ll stick with this cautious view, but there’s a decent chance they nudge up both years to 1.5%’.
German BDI Pushes for Full Customs Union with the UK – GBP/EUR Exchange Rates Inch Higher
In other news Germany’s top business association, the Federal Association of German Industry (BDI) is now pushing for a full customs union with the UK post-Brexit, with the group concerned that a mere trade agreement could be hugely detrimental to German business.
Joachim Lang, Chief Executive Officer for the BDI claimed that the basic trade agreement sought by Brussels is ‘too little for companies’.
Mr Lang stated:
‘…from an economic point of view a free trade agreement does not go far enough’.
UK PM Theresa May has repeatedly ruled out the prospect that the UK will remain a member of the European single market and customs union, however, arguing that Britain needs to be free to negotiate its own trade deals with other nations.
In this respect, the outlook from the BDI at least reflects a willingness on Germany’s part for an arrangement that goes beyond a simple trade deal, a prospect that could give hope and leverage to the possibility of Downing Street successfully negotiating a bespoke deal.
This outlook may have given the Pound Euro (GBP/EUR) exchange rate a small boost.
Pound Euro (GBP/EUR) Exchange Rate Forecast: US and EU Inflation Liable to Cause Volatility
The Pound Euro (GBP/EUR) exchange rate could find even more room to climb on Tuesday and Friday this week as markets respond to the latest consumer price inflation figures for the US and the bloc.
An upbeat US inflation reading could further cement the possibility of a rate hike this month from the US Federal Reserve, thus siphoning demand away from the Euro and potentially giving Sterling even more room to manoeuvre.
Beyond this, low inflation in the Eurozone is an ongoing cause for concern, with soft, below-target readings continually diminishing the prospect that the central bank will move to normalise monetary policy.
In this respect, further contractions (or indeed simple stagnation) in the EU’s CPI readings could send GBP/EUR even higher.