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Pound Euro Slips from Weekly High as Sterling Recovery Loses Steam

  • Pound Euro Near 1.11 – Still well below last week’s highs
  • Thursday Data Fails to Boost Euro – German confidence beats expectations
  • GBP Forecast: Bank of England Meets Next Week – UK PMIs also due
  • EUR Forecast: Eurozone Unemployment Ahead – And final July PMIs

Germany’s July Consumer Price Index (CPI) results beat expectations on Friday, giving the Euro a late-week boost and causing Sterling to shed most of the week’s recovery attempts.

GBP EUR ultimately won’t be ending the week much higher than the week’s opening level of 1.1142.

German inflation was forecast to remain at 0.2% month-on-month but jumped to 0.4%, while yearly inflation is now projected to reach 1.7% rather than slowing from 1.6% to 1.5%.

[Published 06:00 BST 28/07/2017]

The Pound Euro exchange rate continued to edge away from the week’s lows on Thursday. Investors have been buying the undervalued Pound from its lows this week amid a lack of bad news, while solid Eurozone data has merely limited the Euro’s losses.

GBP EUR has gained around a cent so far this week, from the week’s opening level of 1.1142 to a weekly high of 1.1241 on Thursday afternoon. The pair struggled to hold its highs but generally trended above the level of 1.12.

Pound (GBP) Continues to Emerge from Lows

Despite a lack of particularly strong domestic data, the undervalued Pound has been bought up from its lows in recent sessions.

The Sterling recovery was partially prompted by Britain’s Q2 Gross Domestic Product (GDP) growth projections, which met expectations rather than falling short as markets had feared.

UK growth advanced from 0.2% to 0.3% quarter-on-quarter as forecast, while the yearly result slowed from 2% to meet 1.7% projections.

Since then, there’s been little news for Sterling traders to react to. However, the break from bad data and concerning Brexit news this week has helped give investors the chance to buy the undervalued currency.

The Pound outlook remains limited however. Sterling’s advanced have been narrow as investors still lack a real reason to buy back into the British currency. As a result, its chances of making a strong recovery and recovering last week’s considerable losses are slim for the time being.

Euro (EUR) Finds No Fresh Support from German Confidence Report

This week’s Eurozone ecostats have had little notable effect on Euro exchange rates.

The shared currency currently trends near highs against many major currency rivals due to last week’s comments from European Central Bank (ECB) President Mario Draghi, which were perceived as hawkish.

Since then, further Euro gains have been limited – but the currency has done a better job of remaining appealing and holding its ground thanks to solid Eurozone data.

The Pound to Euro exchange rate’s recovery has been limited slightly, but investors are hesitant to continue buying into the Euro without more hawkish forward guidance from the ECB. Thursday’s Eurozone data was the latest to support the Euro.

Germany’s GfK consumer confidence survey for August beat expectations, rising from 10.6 to 10.8 rather than remaining at 10.6 as expected.

Spain’s Q2 unemployment rate also beat expectations. Investors expected it to come in at 17.8% but it instead improved from 18.75% to 17.22%.

Overall, while the data helped the Euro to hold its ground, investors are waiting for Friday’s German inflation stats before taking new positions on the shared currency this week.

Pound Euro Forecast: German Inflation in Focus

The Pound Euro exchange rate is likely to be driven by Euro strength (or weakness) at the end of the week, as Friday will see the publication of a slew of influential Eurozone ecostats.

The Netherlands business confidence survey for July will be published, as well as the latest inflation and Gross Domestic Product (GDP) growth projections for France and Spain.

Consumer confidence and business confidence surveys for the overall Eurozone will also be published, but the main event for Euro traders is likely to be Germany’s July Consumer Price Index (CPI) projection.

Germany’s July inflation figures are forecast to remain at 0.2% month-on-month but slip from 1.6% to 1.5% year-on-year.

If Germany’s inflation stats meet or beat expectations, investors will become more confident that the European Central Bank (ECB) is more likely to withdraw its quantitative easing (QE) package than extend it.

This would likely strengthen Euro demand towards the end of the week and limit GBP EUR recovery.

On the other hand, a lower-than-expected inflation figure could increase concerns that the ECB won’t be as hawkish as hoped in the coming months. This would help the Pound Euro exchange rate to extend its late-week recovery.

As for the Pound, Sterling could become more appealing to investors if Friday’s UK consumer confidence survey or Nationwide house price report beats expectations.

Investors are more likely to wait for next week’s key UK news before making any big new moves on Sterling however.

Next week will see the publication of Britain’s July PMIs from Markit, as well as the Bank of England’s (BoE) August monetary policy decision, meaning there will be plenty for Pound Euro investors to react to next week.