Pound Sterling Euro (GBP/EUR) Exchange Rate Steady After BoE Comments
Comments from Bank of England (BoE) Governor Mark Carney failed to offer any particular boost to the Pound Sterling to Euro (GBP/EUR) exchange rate today.
Although Carney offered a fresh warning over the current health of the UK economy this was not enough to prevent Pound Sterling (GBP) pushing higher in the wake of his speech.
Investors instead took some encouragement from Carney’s estimation that a no-deal Brexit is still not the most likely outcome, in spite of the ongoing sense of political uncertainty.
While it remains to be seen whether Theresa May can find a way to resolve the Irish border issue before the March deadline the Pound’s downside bias still proved limited for the time being.
Easing UK Inflation to Dent GBP/EUR Exchange Rate
The GBP/EUR exchange rate looks exposed to fresh weakness ahead of January’s UK consumer price index data, though.
Forecasts point towards the headline inflation rate easing from 2.1% to 2.0% on the year, falling back in line with the BoE’s target rate.
This would further diminish the case for future monetary tightening, undermining the odds of interest rates rising again before the end of 2019.
Even though the BoE has already demonstrated signs of caution any slowdown in inflationary pressure here looks set to increase the pressure on the Pound.
On the other hand, if inflation surprises to the upside this could help GBP exchange rates to push higher once again.
While rising inflation would limit the strength of domestic wage growth investors could still greet any uptick in the consumer price index, betting on increased BoE hawkishness.
Euro (EUR) Exchange Rates Vulnerable to Weaker German Growth
Demand for the Euro (EUR), meanwhile, may diminish in response to the latest German gross domestic product report.
Markets anticipate another lacklustre set of growth data for the fourth quarter, with the annual GDP forecast to slow from 1.1% to 0.8%.
Evidence that the Eurozone’s powerhouse economy continued to lose its momentum at the end of 2018 could see EUR exchange rates slump sharply across the board.
Quarterly GDP could prove particularly discouraging for the Euro, however, if growth contracts for a second consecutive quarter.
Although forecasts point towards a modest rebound in growth on the quarter any disappointment would leave the German economy in a state of contraction.
The corresponding Eurozone GDP data could also put a dampener on EUR exchange rates, given previous signs of weakness from the French and Italian economies.
Unless there are signs of resilient growth within German or the wider Eurozone this could offer the GBP/EUR exchange rate a fresh rallying point.