Homepage » Brexit » Pound Euro Fluctuates as Markets Digest BoE News and UK Data

Pound Euro Fluctuates as Markets Digest BoE News and UK Data

  • Pound Euro Exchange Rate Remains Near 1.13 – Pair near best levels since July
  • Eurozone Inflation Unsurprising – But Sterling sold from highs
  • UK Retail Sales Impress – Brexit speech on Friday
  • EUR ForecastPMIs at the end of the week – How has Eurozone economy performed?

Updated 16:56 BST 20/09/2017:

Pound Euro Sees Limited Gains after UK Retail Sales Report

At various points throughout Wednesday trade, the Pound Euro exchange rate rose above the key level of 1.13.

Investors bought the Pound in reaction to Britain’s August retail sales results, which beat expectations in every major print.

While the Euro was kept buoyed by Germany’s latest PPI results, Britain’s retail report was more influential.

Some analysts predicted that the retail sales results would support the chances of tighter monetary policy from the Bank of England (BoE) in the coming months.

GBP EUR traders are now anticipating Friday’s Brexit speech from UK Prime Minister Theresa May, which could be highly influential.

[Previously updated 12:51 BST 20/09/2017]

A strong UK retail sales report on Wednesday morning boosted Sterling demand, though the Pound Euro exchange rate’s gains were limited.

GBP EUR briefly jumped above 1.13 in reaction to the news, but for the most part the pair continued to trend near the level of 1.1270.

UK retail sales came in at 2.4% year-on-year and 1% month-on-month, well above the report’s forecasts of 1.1% and 0.2% respectively.

The results indicated that despite the UK pay squeeze and Brexit uncertainties, UK consumers were still happy to spend.

[Previously updated 16:51 BST 19/09/2017]

After beginning to slip on Monday evening, the Pound Euro exchange rate continued to drop on Tuesday. The pair hit a low of 1.1247 on Tuesday morning and spent most of the day trending below the level of 1.13.

Uncertainty about the Bank of England’s (BoE) policy outlook since BoE Governor Carney’s Monday comments has put pressure on Sterling.

As analysts pointed out that the bank has been known to mislead on the potential of rate hikes, the Pound became less appealing.

The Euro was also supported during Tuesday trade, by ZEW’s latest economic sentiment surveys.

While ZEW’s Eurozone sentiment survey fell short of expectations, the German prints both beat expectations.

[Published 06:00 BST 19/09/2017]

A lack of influential new UK or Eurozone data on Monday left the Pound Euro exchange rate relatively limp. Sterling was sold from highs it reached in reaction to surprisingly hawkish Bank of England (BoE) news last week.

GBP EUR saw major gains over the last seven days. The pair opened at 1.0962 last Monday and closed at around 1.1377 on Friday, meaning it had gained around four cents. The pair slipped yesterday but remained near the level of 1.13.

Pound (GBP) Sold from Highs in Profit-Taking

The Pound reached multi-month highs against many major currency rivals on Friday. The currency rallied in reaction to news that the Bank of England (BoE) could be planning to hike UK interest rates much sooner than markets previously expected.

Market consensus for the next UK interest rate hike was previously late-2018. Concerns like wage growth and volatile UK inflation have previously weighed heavily on hopes of any BoE tightening before then.

However, BoE Governor Mark Carney and policymaker Gertjan Vlieghe both indicated in recent sessions that most of the bank’s Monetary Policy Committee (MPC) thing adjustment may become necessary over the next few months.

Vlieghe even suggested that UK interest rates may need to be hiked to higher than they were before 2016’s rate cut.

Due to the surprising hawkishness of BoE officials, investors poured into Sterling.

However, concerns that the bank may have been attempting to talk up the Pound or that the Pound’s rally may have been overdone caused traders to sell the British currency from its highs yesterday.

Notably, HSBC adjusted its previously highly bearish Pound forecast in response to the news.

The bank remains confident that Sterling will see further weakness in 2018 though – largely because of Brexit uncertainties. According to a note published on Monday;

‘The ticking clock on Brexit negotiations is likely to lend politics greater influence, especially if progress remains difficult to come by…

The idea of heightened political uncertainty, difficult Brexit negotiations, or persistent trade deficits – is now playing second fiddle to the possibility of a cyclical rate rise,

Nevertheless over time, politics will become front and centre again – but as it would seem not in 2017.’

More investors sold the Pound on Monday evening as BoE Governor Mark Carney indicated in a new speech that any potential interest rate hikes were likely to be gradual and limited.

Euro (EUR) Limp as Eurozone Inflation Meets Expectations

The Euro outlook was little changed on Monday, as investors were unsurprised by the Eurozone’s final August inflation results.

August’s Eurozone Consumer Price Index (CPI) figures met projections in all notable prints. The yearly inflation rate improved from 1.3% to 1.5% as expected while the monthly figure improved from -0.5% to 0.3%.

Core inflation remained at 1.2% as projected, indicating that inflationary pressures in the bloc were still subdued.

The European Central Bank (ECB) noted on Monday that it expects a slump in consumer prices at the beginning of 2018 too. Inflation could supposedly slip as low as 0.9% in Q1.

As the bank’s inflation target is 2%, the recent inflation data as well as the outlook for inflation is unlikely to give ECB policymakers much relief.

While markets still widely expect the ECB will begin to act on adjusting its quantitative easing (QE) program during October’s policy decision, traders hoping for the bank to take a more hawkish stance on policies like interest rates may have to wait a while longer.

Pound Euro Forecast: ZEW Economic Sentiment Surveys Ahead

The Pound Euro exchange rate is unlikely to see any major shifts in movement for a few days, due to a lack of highly influential ecostats due for publication.

With investors still speculating that the Bank of England (BoE) could hike UK interest rates as soon as November, the Pound could hold its ground even if upcoming UK data disappoints.

Similarly, further Euro strength is likely to be weighed down by expectations that the European Central Bank (ECB) is unlikely to hike Eurozone exchange rates within the foreseeable future.

Regardless, upcoming data could influence GBP EUR slightly. ZEW will publish its Eurozone and German economic sentiment surveys from September today, followed by September consumer confidence for the bloc on Thursday.

UK retail sales results will be published on Wednesday, which will give markets a better idea of how consumers are coping with the pay squeeze.

Most of the week’s major GBP EUR movement is unlikely to come until Friday’s session however. UK Prime Minister Theresa May’s Brexit speech and Markit’s September PMI projections for the Eurozone could have a notable impact the Pound Euro outlook.