Despite the more hawkish than expected FOMC meeting minutes released last night the GBP/EUR exchange rate softened on Thursday due to a sharp decline in October UK Retail Sales.
Pound Currency News: GBP Rallied as BoE’s Broadbent Proved Hawkish
Bank of England (BoE) Deputy Governor Ben Broadbent prompted a short-lived rally for the Pound (GBP) yesterday after suggesting that the market focus on the central bank’s inflation forecasts was overdone. Although Broadbent did not give any particular indications as to when the potential date of the BoE’s first move towards tightening monetary policy might be, this more hawkish tone encouraged a brief surge of increased demand for Sterling. Nevertheless, in the wake of Tuesday’s disappointing UK Consumer Price Index report it was not long before the GBP/EUR exchange rate returned to a downtrend.
Recovering from the bearishness of recent days, the Euro (EUR) made strong gains throughout Wednesday, with traders expecting a more dovish set of meeting minutes from the Federal Open Market Committee (FOMC). However, the ultimate tone of the October policy discussion indicated that the majority of policymakers would feel comfortable with an interest rate rise in December, bolstering the odds of an imminent Fed move further. Consequently the single currency entered a slump against rivals.
ECB Dovishness Fails to Weigh on Euro (EUR) Today, UK Retail Sales Decline to Soften Pound (GBP)
UK Retail Sales proved disappointing this morning, slipping further than forecast to fall from 5.9% to 3% on the year. Despite slower consumer demand increasingly being expected from the October period, as a result of shoppers holding off ahead of the November discount season, this bearish result has nevertheless weighed on the Pound.
Although the European Central Bank’s (ECB) chief economist has been strongly indicating that fresh quantitative easing will be introduced before the end of the year, this has not been enough to prevent the GBP/EUR exchange rate from trending lower today. Traders appear to remain somewhat sceptical of the level of monetary loosening to which the central bank will resort, currently outweighing the concerns raised by the likely divergence of policy between the Fed and ECB in December.
GBP/EUR Exchange Rate Forecast: Pound Predicted to Strengthen with Narrowed UK Public Sector Borrowing
Coming up on Friday, the UK’s Public Sector Net Borrowing figure could prompt a fresh rally for the Pound. Expectations are for a further narrowing of the public sector deficit, with new government debt decreasing from 8.6 billion to 5.2 billion Pounds in October. Potentially offering some reassurance in the robustness of the domestic economy, a strong showing could well see the GBP/EUR pairing making gains ahead of the weekend.
ECB President Mario Draghi is also due to speak tomorrow, with the policymaker likely to reiterate the central bank’s readiness to ease monetary policy. As the Eurozone Consumer Confidence Index for November is expected to show a slight uptick, however, the single currency could continue to prove resilient to talk of ECB loosening.
Current GBP, EUR Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower in the region of 1.4265, while the Euro to Pound Sterling (EUR/GBP) pairing was on an uptrend in the range of 0.7008.