GBP/EUR Slumps to 1.2950 as Central Banks Show Their Hand
- Pound Benefits as ‘Brexit’ Seen as Unlikely – New polls continue to suggest EU favour
- Eurozone CPI Reveals Deflation– Negative inflation for the second month this year
- British Retail Sales Positive – But Pound rally stops on BoE dovishness
- Update: ECB Minutes Lead to Mixed Reactions– But policymakers claim there are no plans for further easing
The Pound to Euro exchange rate slipped from its three-month-high during Friday’s session after a series of statements from Bank of England (BoE) policymaker Gertjan Vlieghe revealed that the bank was not satisfied with the UK economy’s current health.
He claimed that while current issues may have been partially influenced by ‘Brexit’ uncertainty, the BoE could move to introduce easing measures if the economic situation does not quickly improve following a ‘Remain’ vote.
He followed up by saying a ‘Leave’ vote would introduce a slew of other monetary challenges for the bank.
The Euro, on the other hand, advanced slightly on news that various European Central Bank (ECB) policymakers were eager to continue using current easing measures rather than hurry to introduce more. ECB Policymaker Benoit Coeure indicated that there were currently no plans for further easing.
GBP/EUR Jumps as UK Retail Sales Beat Expectations
The Pound to Euro exchange rate briefly rallied to a three-month-high of 1.3068 on Thursday, following the Pound’s Wednesday bullishness in response to news that UK retail sales had released well above expectations.
The monthly score beat forecasts of 0.7% by rising from -0.7% to 1.5%, while the yearly figure gained from 2.6% to 4.2%, exceeding projections of 2.0%.
Sterling’s bullishness was cut short in the afternoon however, as the European Central Bank’s (ECB) latest meeting minutes were not as dovish as investors feared and investors returned to the Euro.
The report maintained that the current easing measures could be in effect for over a year, but focused on calling politicians from individual European nations to take more action to assist in the Eurozone’s economic recovery. On Thursday afternoon, GBP/EUR trended in the region of 1.3020.
By Friday the Pound has slipped back to the high 1.29 range against the Euro. The day’s only UK data, CBI Trends Total Orders/Trends Selling Prices, had little impact on demand for the British asset.
The Pound Sterling to Euro (GBP/EUR) exchange rate leapt up on Wednesday, as the pair was boosted significantly by new EU Referendum polls that suggested a ‘Brexit’ was becoming increasingly unlikely.
GBP/EUR traded around the level of 1.2800 throughout Tuesday and Wednesday morning, but climbed over 150 pips over the course of the day. At the time of writing.
By the time European markets opened on Thursday the Pound to Euro (GBP/EUR) exchange rate had hit the 1.30 level.
If today’s UK retail sales report impresses or the European Central Bank’s (ECB) meeting minutes show that the central bank is considering introducing additional stimulus measures, the Pound could push higher still against its European counterpart.
New ‘Brexit’ Polls Show Increase in ‘Remain’ Lead, Influencing Bullish Sterling (GBP)
Wednesday’s session left the Pound surprisingly bullish after the day’s decent data was largely swept over by increased confidence that the British public would vote to ‘Remain’ in the UK in June’s upcoming EU Referendum.
The day’s data included a slew of employment reports. The key unemployment rate for the 3 months into March came in at the expected level of 5.1%, while the jobless claimant count printed at 2.1% as forecast – despite March’s figure being revised to 2.2%.
The reports also showed a strong jobless claims change of -2.4k and an employment change of 44k. However, the weekly earnings excluding bonuses figure unexpectedly dropped from 2.2% to 2.1% despite estimates that it would gain to 2.3%, which initially weighed on Sterling sentiment.
However, the aforementioned ‘Brexit’ poll results inspired investors to buy the Pound. The Evening Standard reported that 55% would vote ‘Remain’ while 37% would vote ‘Leave’.
‘Despite the doubts, today’s survey reveals the Remain campaign has pulled ahead to its biggest lead in the past three months — with 55 per cent for staying in and 37 per cent for leaving the EU.
This is mainly due to a marked shift among Conservative supporters. The Tory swing suggests the Prime Minister’s intense campaigning is having a significant impact on his party’s followers. …
The most significant change since April is that Conservatives have gone from being marginally in favour of leaving to a clear 60 per cent saying they would vote Remain.’
As the uncertainty of an EU-less Pound has caused investors to become considerably bearish on Sterling in recent months, May’s increase in ‘Remain’ confidence has restored Pound strength.
Euro (EUR) Left Uninspired on Deflation News
After a relatively quiet data week for the Euro, the shared currency looked to complete Wednesday’s session still lacking any inspired movement.
April’s Final Consumer Price Index (CPI) figures printed largely as analysts predicted, but these figures were not particularly optimistic ones, with April’s month-on-month figure being revised to 0.0% from the previously expected score of 1.2%.
The year-on-year score came in at -0.2% as feared, meaning April had been the Eurozone’s second month of deflation thus far in 2016. As a result, the Euro weakened while investors readjusted and increased their European Central Bank (ECB) easing measure bets.
The Wall Street Journal reports;
‘The decline in consumer prices won’t come as a surprise to the ECB, which had expected such an outcome during the first half of this year. But the reasons for the slide back into deflation have caused some fresh anxiety among policy makers.
“I am more worried about deflation,” ECB governing council member Ignazio Visco said in an interview with German business daily Handelsblatt published Tuesday. “With this come bankruptcies and very negative effects on the real economy. I believe we still face a concrete deflation risk.” ’
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: ECB Minutes Anticipated on Thursday
Euro investors can finally expect to see some inspired movement on Thursday afternoon as the European Central Bank’s (ECB) latest meeting minutes are due for release around midday.
ECB policymakers have been dovish in recent months following their extensive easing measures introduced in March, but as recent Eurozone news revealed that inflation still remained low (or in deflation) that dovishness is likely to remain.
The Euro is likely to see pressure and could easily fall against the Pound if the minutes report hints that further easing will happen sooner rather than later.
The Pound, on the other hand, could continue its bullish run if Thursday’s retail sales reports print better-than-expected. Currently, they are predicted to escape contraction of -1.6% month-on-month to score 0.7%, while the yearly score is expected to improve from 1.8% to 2.0%.