Homepage » Brexit » Pound Euro Recovers from 2017 Lows Despite Dimming Hopes for BoE Action

Pound Euro Recovers from 2017 Lows Despite Dimming Hopes for BoE Action

  • Pound Euro Recovers from 1.11 – Reaches key 1.13 level on Thursday
  • Bank of England Policymaker Broadbent Disappoints – Not ready to support rate hike
  • UK Wage Growth Beat Expectations – But real wages still fall
  • ForecastKey Inflation Stats Next Week – UK and Eurozone results from June

Pound Euro Hits New Weekly High on Thursday

Thanks to Wednesday’s UK employment results and Ian McCafferty’s hawkish comments on Thursday, the Pound Euro exchange rate has seen a solid recovery from the week’s 2017 low.

GBP EUR is unlikely to see any big shifts in movement on Friday, unless BoE or ECB officials make more comments on monetary policy.

Failing that, investors will be looking ahead to next week for the publication of the final June inflation results for Britain and the Eurozone.

If Eurozone inflation beats expectations, the Euro could see stronger demand next week ahead of the European Central Bank’s July monetary policy decision.

[Previously updated 12:33 BST 13/07/2017]

After recovering from a 2017 low of 1.1185 on Wednesday, the Pound Euro continued to advance on Thursday and at the time of writing was trending near a weekly high of 1.1338 – putting it above the week’s opening levels.

This was largely due to the morning’s hawkish comments from Bank of England (BoE) policymaker Ian McCafferty, as well as limp trade in the Euro.

McCafferty is a known hawk so his comments weren’t a big surprise for Pound traders, but they increased hopes that the BoE could soon at least discuss the withdrawal of its quantitative easing (QE) program.

[Previously updated 16:56 BST 12/07/2017]

Pound Euro Recovers on UK Jobs Data and ECB Uncertainty

Towards the end of Wednesday’s European session, the Pound Euro exchange rate put in a solid recovery. At the time of writing this update GBP EUR trended at around 1.1290, but the pair had touched on the key level of 1.13 too.

Investors bought the Pound Euro exchange rate up from the eight-month-low seen earlier in the day, thanks to the unexpected improvement in Britain’s unemployment rate.

However, the Pound outlook is still subdued overall due to falling real wages and a generally dovish set of Bank of England (BoE) policymakers.

Sterling was able to more easily recover against the Euro due to persistent uncertainty about when the European Central Bank (ECB) may begin to discuss withdrawing its aggressive quantitative easing (QE) program.

[Previously updated 12:59 BST 12/07/2017]

Wednesday morning saw the Pound Euro exchange rate briefly hit a new eight-month-low, falling to 1.1177 as traders reacted to fresh comments from Bank of England (BoE) official Ben Broadbent.

Broadbent had avoided talking monetary policy on Tuesday, but on Wednesday clarified that he did not feel ready to support higher UK interest rates.

As a result of this and poor UK ecostats in recent weeks, investors have given up on the chances of the Bank of England (BoE) tightening monetary policy in the near future.

However, GBP EUR recovered slightly from its multi-month lows as Britain’s May job market report came in slightly above expectations.

Wage growth excluding bonuses was forecast to rise slightly from 1.8% to 1.9%, but instead rose to 2%. As this was a bit better than investors expected, the Pound saw slightly stronger support.

[Published 06:00 BST 12/07/2017]

The Pound Euro exchange rate tumbled on Tuesday. Investors firmed in the Pound ahead of the day’s Bank of England (BoE) comments, but amid a lack of fresh forward guidance investors sold Sterling off.

GBP EUR began this week trending at the level of 1.1305. On Tuesday the pair briefly touched a high of 1.1338 ahead of BoE policymaker Broadbent’s speech, but following the speech the pair dropped to a low of 1.1238. This was the lowest GBP EUR level since November 2016.

Pound (GBP) Investors Disappointed by Broadbent Speech

In recent weeks, many Bank of England (BoE) policymakers have clarified their stances on UK monetary policy, following splits during BoE policy decisions.

High ranking officials like Governor Mark Carney and chief economist Andy Haldane have even indicated they could become more hawkish if British ecostats impress in the coming months.

Investors firmed in the Pound on Tuesday morning in anticipation of a speech from BoE Deputy Governor of Monetary Policy, Ben Broadbent. Broadbent had yet to clarify his recent position on policy or his outlook, leaving markets speculating that he could turn hawkish.

However, Broadbent’s speech came and went without any comments on monetary policy, largely focusing on the potential negative effects of the Brexit process on the UK economy.

Analysts noted that Broadbent’s lack of commentary on monetary policy likely indicated he hadn’t changed his stance and would remain cautious and dovish.

According to Kathleen Brooks from City Index;

‘His speech in Aberdeen, the seat of the UK oil industry, gave no direct reference to his views on the outlook for UK monetary policy, however, he was very concerned about the UK’s trade prospects after Brexit, something that is most likely shared by the export-orientated audience in Aberdeen.

It doesn’t seem like a stretch to assume that if Broadbent is concerned about Brexit’s impact on trade then he is unlikely to make things harder for exporters by voting to raise interest rates any time soon. Thus, the hawks on the committee, now just McClafferty and Saunders, could remain in the minority for some time.’

With just a couple of BoE policymakers still taking hawkish stances, the Pound plunged on Tuesday.

Euro (EUR) Benefits from Pound Weakness

Investors who had been firming on the Pound on Tuesday morning instead bought up the Euro towards the end of the day’s European session, amid speculation that the European Central Bank (ECB) was likely to adjust monetary policy sooner than the Bank of England.

The Euro was little affected by the day’s ecostats. Italian industrial production improved month-on-month, from -0.5% to 0.7%, beating 0.5% expectations. The year-on-year print beat expectations of 2.2%, rising to 2.8%.

A fresh speech from European Central Bank (ECB) official Benoit Coeure also had little effect on the shared currency.

Coeure did note that exchange rate movement in reaction to the ECB’s aggressive quantitative easing (QE) package was not the objective of ECB policy. He stated;

‘Currency depreciation is a side-effect of policy and neither its main transmission channel, nor its objective’

Overall, the Euro advanced on Tuesday due to weakness in European rivals like the Pound.

Pound Euro Forecast: UK Wage Growth to Influence GBP EUR

Wednesday will see the publication of this week’s most influential UK ecostats; the May job market report.

Included in the job report is May’s wage growth results. Analysts have noted in recent months that surging inflation and weak wage growth in Britain could dent consumer spending, which may have a negative effect on Britain’s Gross Domestic Product (GDP).

If wage growth beats expectations it will boost hopes for resilience in British economic growth later in the year. This would also lead to higher Bank of England (BoE) tightening bets and a stronger Pound. Weak wage growth data would have the opposite effect.

Britain’s May employment change results and June jobless claims data will be published at the same time as the wage stats. If wage growth offers little surprise to investors, the other UK job stats may influence Pound Euro exchange rate movement instead.

The Euro is unlikely to see major movement on Wednesday, but could be supported if the Eurozone’s May industrial production report impresses.

Thursday’s German and French inflation stats from June are likely to be the biggest stats for Euro traders this week.