European Commission Cuts Eurozone Economic Growth Forecasts
The European Commission (EC) has revised its forecasts for Eurozone growth down from the estimate given in November. The EC had predicted GDP at 1.8% in 2016, but has now trimmed that forecast by ten basis points. The 2017 outlook remains the same at 1.9%.
Bank of England (BoE) Policymaker Shocks Investors with Dovish U-Turn
While the vote to leave interest rates on hold at 0.50% today surprised few, the fact that Ian McCafferty voted with the rest of the Monetary Policy Committee (MPC) in favour of the rise has seen Pound Sterling tumble. Mark Carney has come under fire for his questionable forecasts regarding interest rates, many of which have promised something that was then never delivered.
Central bankers are at the heart of Pound Sterling to Euro (GBP/EUR) exchange rate movements today. Investors are cautiously awaiting the Bank of England’s (BoE) ‘Super Thursday’ announcements, which include another interest rate decision and the release of the quarterly Inflation Report. Meanwhile, European Central Bank (ECB) President Mario Draghi has once again dropped clear suggestions that there may be more monetary stimulus for the Eurozone delivered in the March policy meeting.
Approaching ‘Super Thursday’ Announcement Holds GBP/EUR around Opening Levels
Today sees the release of the BoE quarterly Inflation Report, a key indication of when interest rates might begin to rise. The previous ‘Super Thursday’ spelled bad news for Pound Sterling, with the incredibly dovish tone of report dashing hopes that the Monetary Policy Committee (MPC) would follow the Federal Reserve into a rate hike cycle once the Federal Open Market Committee (FOMC) finally committed to tightening policy. Given the worsening global conditions, with Chinese stocks continuing to plummet and oil thus far failing to break above $35 per barrel, it is likely that today’s report could be even more pessimistic.
Also announced today will be the BoE interest rate decision. It is expected that this will be the 83rd consecutive month in which interest rates have been left on hold at 0.50%. While the decision is almost a given, investors will be turning once again to the actions of the individual policymakers. Ian McCafferty has been the sole hawk in the room for the past six meetings, voting against the other committee members in favour of a 0.25% raise. His continuing to do so will give investors some confidence that current economic conditions haven’t dampened his outlook, while another policymaker voting with him would fuel speculation that the MPC were shifting towards tighter policy.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3132.
Euro to Pound Sterling (EUR/GBP) Exchange Rate: Draghi Hints at Further Stimulus in March
In a speech in Frankfurt, Mario Draghi has again suggested that the ECB will reviews its policy in March with a view to providing more monetary stimulus. He acknowledged that global conditions were providing intense downward pressure on Eurozone inflation, but claimed that ‘they do not justify inaction’.
Draghi claims that ‘There are forces in the global economy today that are conspiring to hold inflation down. Those forces might cause inflation to return more slowly to our objective. But there is no reason why they should lead to a permanently lower inflation rate.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.7592 and 0.7629.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Inflation Report on Tap
The Bank of England’s Inflation Report is bound to cause volatility for Pound Sterling, while the statement accompanying the next interest rate decision could provide further clues as to the long-term outlook on UK interest rates.
The Pound Sterling to Euro exchange rate is currently trading between 1.3098 and 1.3170.