Pound to Euro Exchange Rate Edges Higher Ahead of This Week’s Key Inflation Datasets
Last week’s optimistic Brexit news and rising Bank of England (BoE) interest rate hike bets helped the Pound to Euro (GBP/EUR) exchange rate to put in major gains, and the pair could continue to climb this week too.
GBP/EUR climbed from last week’s opening levels of 1.1342 and touched on its best levels since June 2017 towards the end of the week – 1.1503. After slipping and closing the week at the level of 1.1435, the pair edged higher on Monday morning.
UK news making investors much more optimistic that the UK would see a post-Brexit transition period, rather than a ‘cliff edge’ hard Brexit scenario, as well as rising confidence that the Bank of England (BoE) would hike UK interest rates in May, bolstered Sterling (GBP).
This has kept GBP/EUR trade appealing this week too. A lack of market reasons to buy the Euro (EUR) has made it easier for GBP/EUR to hold its gains.
Investors are currently anticipating major UK and Eurozone ecostats due for publication later in the week. If inflation data from Spain, German or France impresses it could cause European Central Bank (ECB) speculation and boost the Euro.
Pound (GBP) Exchange Rates Higher as Bank of England (BoE) Bets Firm
Thanks to news that the UK and EU had largely agreed to the terms of a post-Brexit transition period, investors now expect a smoother Brexit process which has also bolstered confidence that the Bank of England (BoE) will hike UK interest rates again soon.
In fact, investors increasingly priced in a May UK interest rate hike following strong UK wage growth stats and retail sales data last week.
On top of strong UK ecostats, the Bank of England itself indicated in its March policy decision that the bank was looking to hike UK interest rates in the coming months.
Unless there is some kind of dovish shock in Brexit developments or UK economic news, analysts predict a May interest rate hike is highly likely.
This is likely to keep Sterling more firmly supported in the coming days and weeks.
Euro (EUR) Exchange Rate Strength Limited as Eurozone PMIs Fall Short
After months of strong Eurozone ecostats making investors highly optimistic about the Eurozone economic outlook and making the Euro appealing against most majors, last week’s Eurozone data was underwhelming.
In particular, the Eurozone’s March PMI projections from Markit largely fell short of expectations, causing concerns that the Eurozone’s economy was not seeing as strong growth as previously expected.
The Eurozone’s manufacturing PMI projection slipped from 58.6 to 56.6, services from 56.2 to 55.0, and the overall composite figure from 57.1 to 55.3.
While growth in the bloc was still robust, the data indicated that things were slowing down quicker than an analysts expected.
Pound to Euro (GBP/EUR) Forecast: UK Growth and Eurozone Inflation in Focus
The Pound to Euro (GBP/EUR) exchange rate is likely to be driven by ecostats in the coming days, at least if there are no surprising Brexit developments.
Britain’s economic calendar will be a little quieter this week, but the final Q4 2017 UK Gross Domestic Product (GDP) results will be published on Thursday and could certainly cause some movement if they surprise investors.
UK business investment from Q4 and mortgage stats will also be published on Thursday.
The Euro may be more likely to drive GBP/EUR movement this week, as notable Eurozone ecostats will be published throughout – beginning with Spanish inflation and Eurozone business confidence on Tuesday.
Thursday will follow with German unemployment and inflation, then lastly French and Italian inflation projections will be published on Friday.
If Eurozone Consumer Price Index (CPI) projections beat expectations, it could boost hopes that the European Central Bank (ECB) may be pressured into taking a more hawkish tone on monetary policy sooner than previously expected. This would leave the Euro stronger.
On the other hand, if Eurozone inflation comes in lower than expected, GBP/EUR is positioned to see further gains this week.