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Pound Euro Hits New Weekly Highs on BoE Speculation

  • Pound Euro Exchange Rate Recovers from 1.11 Low – Reaches 1.14 on Friday
  • UK Wage Growth Beats Expectations – UK unemployment rate hits 42-year-low
  • German Inflation Firm – Inflation meets projections
  • GBP Forecast: UK Inflation Due Tuesday – Pound trade could calm until then

GBP EUR looks to end the week’s European session near its best levels since last week, as the Pound got yet another boost following the latest US ecostats.

US inflation fell short of expectations in June’s print, worsening concerns that the Federal Reserve may not be able to hike US interest rates again before the end of 2017.

As a result of this and lasting uncertainty about whether the European Central Bank (ECB) will be talking about lightening its quantitative easing (QE) measures any time soon, the Pound benefitted greatly from the drop in Fed rate hike bets.

The Pound Euro exchange rate climbed to above 1.14, hitting a high of 1.1433 as the week drew to an end.

[Previously updated 12:46 BST 14/07/2017]

The Pound Euro exchange rate continued to climb on Friday, following its sharp recovery from 2017 lows earlier in the week.

On Friday morning, GBP EUR hit a one-week-high of 1.1369. A cheap Pound continued to edge higher ahead of next week’s key ecostats.

The Euro has been unable to hold its ground against this week’s Pound gains. The shared currency was also weakened by Friday’s news that Ireland’s Q1 Gross Domestic Product (GDP) contracted at -2.6% quarter-on-quarter, well below the expected 2%.

[Previously updated 16:56 BST 13/07/2017]

Pound Euro Exchange Rate Unaffected by German Inflation

Thursday’s Eurozone ecostats generally had no notable effect on the Pound Euro exchange rate. The pair continued to recover and towards the end of the day was trending close to its best levels all week, 1.1349.

The final June inflation data from Germany, France and Spain met preliminary projections in every print. As expected, German inflation improved from 1.5% to 1.6% year-on-year, with French inflation slipping from 0.8% to 0.7% and Spanish inflation slowing from 1.9% to 1.5%.

Friday’s data is unlikely to cause any shifts in GBP EUR movement either. The pair could remain near its current levels until the end of the week unless markets have some fresh BoE or ECB comments to digest.

[Previously updated 12:41 BST 13/07/2017]

Despite low hopes that the Bank of England (BoE) has enough hawkish policymakers to see tighter UK monetary policy in the foreseeable future, Thursday’s BoE news still boosted the Pound.

At the time of writing, the Pound Euro exchange rate had recovered above the level of 1.13 and trended near a weekly high 1.1349.

Thursday saw BoE policymaker Ian McCafferty state that the bank may need to at least think about unwinding its quantitative easing (QE) scheme.

While McCafferty is typically among the bank’s more hawkish members, traders hope his comments mean the bank will at least discuss QE withdrawal within the foreseeable future.

[Published 07:00 BST 13/07/2017]

The Pound Euro exchange rate saw volatile trade on Wednesday, hitting its worst levels November 2016 in the morning before recovering when Britain’s May job market report beat expectations. European Central Bank (ECB) uncertainty kept pressure on the Euro.

GBP EUR plunged due to Bank of England (BoE) disappointment and hit an eight-month-low of 1.1177 on Wednesday morning. After the day’s UK data, the pair recovered and touched on the key level of 1.13 towards the end of the day.

Pound (GBP) Benefits from Solid UK Job Stats

Wednesday morning saw the publication of Britain’s May job market report, which revealed that the key unemployment rate had unexpectedly improved from 4.6% to 4.5%.

This put unemployment at its best levels since 1975 – an impressive 42-year-low. Jobless claims were lower than expected in June too, boosting hopes that UK unemployment would remain near its recent lows.

Sterling was supported further by May’s wage growth excluding bonuses figure, which beat expectations. Previously forecast to rise from 1.7% to 1.9%, it instead improved from a revised 1.8% to 2%.

As the results were better than markets expected, investors took the opportunity to buy the Pound back up from its cheapest levels.

However, while the Pound has recovered from its lows, analysts are concerned about Britain’s economic outlook. Wage growth was better than expected but still far below Britain’s inflation rate.

As the difference between inflation and wage growth rises, real wages fall. Ben Brettell, senior economist from Hargreaves Lansdown, stated;

‘Shrinking real pay doesn’t bode well for economic growth – the UK economy is heavily reliant on the consumer and falling real incomes should eventually translate into lower retail sales. Respected think-tank NIESR said last week it expects relatively anaemic growth of 0.3% in the second quarter – barely higher than the disappointing 0.2% registered in Q1.’

On top of this, fading speculation that the Bank of England (BoE) may need to tighten UK monetary policy in the mid-term future has kept the Pound under pressure. As a result, Sterling’s recovery has been heavily limited.

Euro (EUR) Weakens on European Central Bank (ECB) Uncertainty

The Euro’s strength has been limited this week which has helped the Pound to recover from its recent lows.

Investors are hesitant to buy much further into the shared currency amid uncertainty on when exactly the European Central Bank (ECB) could begin to rein in its aggressive quantitative easing (QE) package.

While the bank did indeed remove a key phrasing from its meeting minutes suggesting the package could be expanded or extended, ECB officials continue to take dovish stances.

On Wednesday, Bank of Italy Governor Ignazio Visco stated that monetary conditions needed to remain expansive. This weighed on speculation that the ECB could discuss withdrawing or tapering QE in the coming months.

Uncertainty over forward guidance has also meant that the Euro has seen little reaction to the latest Eurozone ecostats.

Wednesday saw the publication of the Eurozone’s May industrial production results, which beat expectations. The year-on-year print improved from 1.2% to 4%, while the monthly print rose from 0.3% to 1.3%.

Pound Euro Forecast: German Inflation in Focus

The Pound to Euro exchange rate could end the week closer to its opening levels if the rest of the week’s Eurozone ecostats don’t contain any nice surprises for Euro traders.

However, if some key Eurozone inflation stats come in above expectations the Euro could see stronger demand and push GBP EUR down again.

Thursday will see the publication of Germany’s final June inflation report, which investors expect will have improved slightly from 1.5% to 1.6% year-on-year.

If these beat expectations, the Euro could strengthen as investors will become more hopeful that inflation in the Eurozone is solidifying. If France’s June inflation data beats expectations too, the Euro would be even stronger towards the end of the week.

On the other hand, if the inflation stats fall short of expectations investors will become more concerned that the European Central Bank (ECB) could delay the withdrawal of its quantitative easing (QE) package further.

Sterling is unlikely to see any big shifts in movement before the end of the week due to a lack of UK ecostats due until next Tuesday’s June inflation results.

However, any fresh comments from Bank of England (BoE) officials or any Brexit developments would impact the Pound Euro exchange rate.