Following a more dovish week, the Pound (GBP) has returned to stronger form today after the latest Public Sector Net Borrowing figure bettered forecast.
Euro (EUR) Slumped as Dovish Draghi Highlighted Odds of Fresh Easing to Come
Although traders had been largely dismissive of the odds of the European Central Bank (ECB) voting to expand its quantitative easing measures at yesterday’s policy meeting, the Euro (EUR) nevertheless softened somewhat ahead of the announcement. ECB President Mario Draghi consequently prompted the single currency to slump across the board as the policymaker reiterated the possibility of further monetary loosening later in the year, stressing the central bank’s willingness to act. While investors had previously been disappointed by Draghi’s lack of delivery on his dovish rhetoric in December, this did not prevent the Euro from shedding many of its recent gains against rivals.
UK Public Sector Borrowing Betters Forecast to Bolster Demand for Pound Sterling (GBP) Today
While the reduced odds of a more imminent Bank of England (BoE) interest rate hike, heralded by Governor Mark Carney’s cautious comments on Tuesday, had dented the appeal of the Pound (GBP) the currency has since begun to recover some strength. This morning’s Public Sector Net Borrowing figure for December proved better than expected, showing that new government debt had fallen from 12.9 to 6.9 billion. Although December Retail Sales were decidedly more disappointing than pundits had anticipated, clocking in at growth of 2.1% rather than 3.5% on the year, this was counteracted by the month’s more bullish narrowing in public borrowing.
Confidence in the strength of the Eurozone continued to decline this morning after the latest raft of PMIs showed fresh signs of weakness throughout the currency union, with only the French service sector evidencing expansion on the month in January. While the German economy remains firmly in growth territory the manufacturing industry has nevertheless slowed further at the start of the year, slipping from 53.2 to 52.1. As these weaker figures are likely to increase pressure on the ECB to consider loosening monetary policy in the near future the single currency has trended lower across the board.
GBP/EUR Exchange Rate Forecast: Decreased German Business Sentiment Predicted to Dent Euro Further
Next week the Pound could stand to return to a more bearish form, particularly if Nationwide House Prices demonstrates raising prices and persistent heat in the domestic housing market. As the apparent bubble within the housing market has been of particular concern to traders for some time a continued acceleration in prices could prompt renewed Sterling weakness.
The Euro may equally remain on a downtrend as the latest IFO Business Sentiment Survey is forecast to show that confidence within the Eurozone’s powerhouse economy has declined in January, another sign that negative global headwinds remain a significant drag on domestic economic conditions.
Current GBP, EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was making gains in the region of 1.3161, while the Euro to Pound Sterling (EUR/GBP) pairing was slumped around 0.7598.