Dovish BoE Minutes Weigh on Pound Sterling (GBP) as Odds of 2016 Interest Rate Hike Recede
With the Pound (GBP) muted in response to the more dovish nature of yesterday’s Bank of England (BoE) meeting minutes the Pound Sterling to Euro (GBP/EUR) exchange rate has continued to slump on Friday. A resurgence in safe-haven demand has been supporting the Euro (EUR) after Chinese New Yuan Loans were found to have declined further than expected in December, provoking a fresh round of stock market volatility. Consequently the GBP/EUR exchange rate has been trending lower in the region of 1.3212.
With pundits anticipating a fairly dovish Bank of England (BoE) rate decision the Pound Sterling to Euro (GBP/EUR) exchange rate has been in a downtrend this morning.
Weak Eurozone Industrial Production Failed to Boost Pound Sterling to Euro (GBP/EUR) Exchange Rate
Market sentiment was somewhat improved on Wednesday after China posted an unexpectedly improved set of trade figures, with exports leaping on the month in December and the country’s trade surplus consequently widening. With safe-haven demand reduced, the Euro (EUR) was dented further by the revelation that Eurozone Industrial Production had fallen further than forecast in November. Industrial output weakened from 2.0% to 1.1% on the year, suggesting that the negative headwinds of the slowing global economy had impacted the currency union more severely than previously thought.
Nevertheless, the Pound Sterling to Euro (GBP/EUR) exchange rate failed to capitalise on the softening of the common currency as demand for Sterling remained equally weak.
Pound Sterling (GBP) Trends Lower Ahead of BoE Rate Decision, Euro (EUR) Bolstered by Solid German GDP Today
The GBP/EUR pairing has slumped further this morning following an uptick in Germany’s annual GDP, which rose from 1.6% to 1.7% in 2015. With the Eurozone’s powerhouse economy continuing to demonstrate strength in spite of downside risks, including the Volkswagen emissions scandal and persistently weak inflationary pressure, this has helped to bolster the Euro across the board. The appeal of the single currency has also increased in response to more dovish comments from members of the Federal Open Market Committee (FOMC), who recently indicated that the central bank may not hike interest rates as rapidly as markets have been anticipating.
Demand for the Pound (GBP) has remained muted on Thursday ahead of the first Bank of England (BoE) interest rate decision of 2016, as investors expect policymakers to offer little in the way of hawkishness. Following weaker Services PMI and declining Industrial Production figures, pressure is lacking for the central bank to begin monetary tightening, with the Monetary Policy Committee (MPC) likely to remain split 8-1 in favour of leaving interest rates on hold today.
GBP/EUR Exchange Rate Forecast: Narrowed Eurozone Trade Balance May Prompt Single Currency Softening
If the BoE does indeed take a more dovish tone the Pound is likely to extend its recent losses further, as traders continue to lack incentive to buy into the softening currency. As markets seem to have largely priced in the impact of more cautious policymaker commentary, however, the GBP/EUR exchange rate may not slump overly sharply.
The latest Eurozone Trade Balance could diminish the appeal of the Euro ahead of the weekend if the currency union’s trade surplus is shown to have narrowed in November, although fresh stock market volatility may continue to bolster the safe-haven currency.
Current GBP/EUR Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped in the region of 1.3200, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains at 0.7576.