Pound to Euro Exchange Rate Edges Away from Worst Levels on BoE Speculation
Despite a lack of strong UK data in recent sessions, the Pound to Euro (GBP/EUR) exchange rate rebounded slightly from its weekend lows on Monday.
Still, it has barely recovered a fraction of the major losses seen last week. Last week saw GBP/EUR plunge over a cent from 1.1541 to 1.1388. On Monday, GBP/EUR touched on a high of 1.1432, but generally trended near the level of 1.1415 at the time of writing.
The main cause for Sterling’s (GBP) losses has been a fall in Bank of England (BoE) interest rate hike bets since last week. UK inflation disappointed investors and investors interpreted Bank of England Governor Mark Carney’s latest comments as dovish.
Demand for the Pound did improve slightly on Monday, due to analyst speculation that bets of a May interest rate hike from the BoE could rise again if this week’s UK growth data impresses investors.
Euro (EUR) Exchange Rate Strength Limited as German Business Confidence Slides
While Monday’s Eurozone PMI projections from Markit generally beat expectations, Tuesday’s business confidence data from France and Germany printed worse than markets predicted.
French business confidence was expected to remain at 110 in April, but instead slipped to 109.
Meanwhile, Ifo’s German confidence data from April fell short of forecasts in every major print.
Current conditions fell from 125.9 to 105.7, below the expected 106. The expectations print slipped from 104.4 and past the forecast 99.5 to just 98.7.
Lastly, the key business climate print tumbled from 114.7 to 102.1, also below the expected figure of 102.7.
Tuesday’s underwhelming Eurozone business data weighed on the Euro (EUR), following Monday’s generally solid PMI projections.
As the European Central Bank (ECB) has recently ramped up cautiousness and warned about the value of the Euro, investors have had little reason to buy the shared currency.
Pound (GBP) Exchange Rates Weak in Historically Bullish April
Following a strong performance from the Pound at the beginning of the month, the seasonal strength Sterling typically benefits from in April appears to have worn out.
With Bank of England (BoE) interest rate hike bets falling, UK economic growth uncertain and still no perceived resolution to the Brexit issue of the Irish border, the Pound may be looking at its worst April in years.
Just over a week ago, bets of a May interest rate hike from the BoE were over 80%. As of now, bets of a rate hike are below 50%.
While many analysts believe a May rate hike is still a possibility, the broad uncertainty on UK monetary policy has left Sterling unappealing.
Pound to Euro (GBP/EUR) Forecast: European Central Bank (ECB) in Focus
The Pound to Euro (GBP/EUR) exchange rate’s movement may be limited until later in the week, when key news such as the European Central Bank (ECB) policy decision and UK growth results will come in.
The ECB policy decision, set for Thursday, is not expected to result in any changes in Eurozone monetary policy. Investors will instead be focused on the bank’s tone regarding the bloc’s monetary policy outlook.
Any signs that the bank is more optimistic than expected on Eurozone growth or especially inflation would bolster ECB interest rate hike bets and leave the Euro stronger.
However, as the bank has recently warned on the Euro’s strength, the bank may instead choose to take a more cautious than expected stance which would leave the Euro weaker.
Friday will see the publication of Britain’s Q1 2018 Gross Domestic Product (GDP) projections. These will be the most accurate 2018 growth figures for the UK so far and could boost Bank of England (BoE) interest rate hike bets if they impress.
Essentially, the Pound to Euro (GBP/EUR) exchange rate is most likely to be driven by potential changes in central bank speculation this week.