Stock Market Volatility Bolsters Demand for Euro (EUR), Pound (GBP) Extends Slump Today
Stock markets have remained in a skittish state on Thursday morning, bolstering the Euro (EUR) with a resurgence of safe-haven demand. With pundits confident that today’s European Central Bank (ECB) policy meeting will not see the introduction of any fresh monetary loosening measures the single currency is likely to remain dominant, as the Pound Sterling to Euro (GBP/EUR) exchange rate trends lower around 1.3005.
Euro (EUR) Softens in Advance of ECB Policy Meeting
The single currency (EUR) has been softening somewhat ahead of tomorrow’s European Central Bank (ECB) policy meeting, as investors remain cautious of the possibility of policymakers taking a more dovish tone. In spite of the day’s earlier bearishness the Pound Sterling to Euro (GBP/EUR) exchange rate has been recovering some ground towards the end of Thursday’s European session, trending around 1.2991.
Demand for Pound Sterling (GBP) has remained in decline on Wednesday as an unexpected decline in unemployment fails to eclipse a further deceleration of domestic wage growth.
Diminishing Odds of 2016 BoE Interest Rate Hike put Pound Sterling (GBP) on Bearish Trend
Although the Pound (GBP) started yesterday on a stronger footing after the December Consumer Price Index figures showed a modest uptick in domestic inflationary pressure the resultant rally was ultimately not long-lived. While baseline inflation rose to 0.2% on the year in December, the highest reading since the beginning of 2015, this remained substantially short of the Bank of England’s (BoE) 2% target. As such BoE Governor Mark Carney took a decidedly dovish tone in comments at the University of London, indicating that the central bank was unlikely to begin tightening monetary policy in the near future. Consequently the appeal of Sterling dived, pushing the currency down across the board and taking the Pound Sterling to Euro (GBP/EUR) exchange rate to a then-twelve-month low of 1.2971.
UK Unemployment Rate Hits Fresh Low as Weak Wage Growth Weighs on Pound Sterling to Euro (GBP/EUR) Exchange Rate
While safe-haven demand had unexpectedly declined in the wake of China’s latest GDP report, which showed that the world’s second largest economy had hit its lowest level of growth in twenty-five years, the single currency (EUR) has been back on more bullish form on Wednesday. Despite Eurozone inflation having been confirmed to have fallen back to 0.2% at the end of 2015, weakening German economic confidence and poor German Producer Prices the Euro has been making fresh gains against rivals. Pundits appear to remain somewhat dismissive of the likelihood that policymakers at the European Central Bank (ECB) will opt to loosen monetary policy further at their January meeting, in spite of signs that negative global pressures are denting the economic strength of the currency union.
Today’s raft of UK employment data proved somewhat more positive than investors had anticipated, with an unexpected decline of -4,300 in unemployment benefit claims and the consequent dip of the ILO Unemployment Rate from 5.2% to 5.1%. However, these more bullish figures were largely countered by the revelation that Average Weekly Earnings in the three months to November had slowed to 2.0%. This was a greater decline in acceleration than forecast, suggesting that wage growth in the domestic economy remains weaker than policymakers would like and diminishing the odds of a BoE rate hike further.
GBP/EUR Exchange Rate Forecast: Dovish ECB Policy Meeting Predicted to Dent Euro Bullishness
Volatility can be expected for the Euro tomorrow, though, as traders react to the results of the ECB’s first policy meeting of 2016. After the severe disappointment of December’s less dovish meeting markets may not react quite so sharply to the words of policymakers, although any signs of an expansion of the current quantitative easing program is unlikely to bolster the single currency.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower in the region of 1.2945, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains around 0.7718.