Dovish ECB Comments Fail to Weigh on Euro (EUR) as Pound (GBP) Remains Bearish
Although European Central Bank (ECB) President Mario Draghi talked the Euro (EUR) back onto a dovish trend yesterday morning the impact of the policymaker’s words was ultimately limited. While Draghi emphasised the central bank’s willingness and ability to expand monetary loosening traders were left unconvinced, particularly following the disappointment of the recent ECB policy meeting. As a result, the Pound Sterling to Euro (GBP/EUR) exchange rate remains slumped in the region of 1.3736.
Monday morning has seen the Pound Sterling to Euro (GBP/EUR) exchange rate slump in response to mixed Rightmove House Prices figures and improved Eurozone Industrial Production.
GBP/EUR Exchange Rate Gains Despite IMF Endorsement of BoE Dovishness
After the initial market disappointment of last week’s more dovish Bank of England (BoE) rate decision and meeting minutes, sentiment towards the Pound (GBP) began to pick back up on Friday. Traders were largely reassured by the IMF’s more positive assessment of the domestic economy despite its suggestion that the BoE should keep interest rates at their current record lows in order to support a continued recovery in the UK’s economic health. This helped to outweigh the impact of an unimpressive Construction Output report, which revealed that domestic construction had only grown by 0.2% on the month in October.
The Euro (EUR) was bolstered by the confirmation that Germany’s Consumer Price Index for November had seen a slight uptick from 0.3% to 0.4%. While inflation within the wider Eurozone remains a decided concern for the European Central Bank (ECB) this more positive showing offered some encouragement that the currency union’s powerhouse economy continues to strengthen. Nevertheless, the relative buoyance of the Pound saw the GBP/EUR exchange rate edge higher going into the weekend.
Pound Currency News: GBP Trends Lower on Bullish House Prices Today
Traders were not encouraged this morning, however, as the December UK Rightmove House Prices report revealed that prices had increased 7.4% on the year. Exacerbating house bubble concerns, this prompted the Pound to shed value across the board. Although the BoE has previously highlighted the risk that overly-bullish house prices pose to the wider economy investors have remained concerned by the current lack of actions taken to deflate the growing bubble.
However, while the annual house price figure climbed from 6.2% to 7.4%, property values were still down -1.1% on the month in December.
There was an upside surprise for the Eurozone today as October’s Industrial Production was found to have strengthened significantly, rising from 1.3% to 1.9% as producers appeared to face higher demand from consumers. While this more bullish result bolstered the Euro against the Pound today a fresh round of dovishness could be in store after ECB President Draghi speaks this morning.
GBP/EUR Exchange Rate Forecast: Pound Predicted to Rally if UK Inflation Rises
A Pound rally may materialise tomorrow, however, as the UK Consumer Price Index is forecast to have risen from -0.1% to 0.1% in November. Should inflation show signs of picking back up and climbing out of negative territory, Sterling is likely to see an improvement in outlook. As weak inflationary pressure remains a significant barrier to the BoE taking a more hawkish approach any improvement could boost bets of an early 2016 interest rate rise.
While the approaching Fed interest rate decision will weigh on the common currency over the coming days, a strong set of ZEW Economic Surveys could shore up the Euro on Tuesday. If economic sentiment within Germany and the wider Eurozone is shown to have improved in the last month the GBP/EUR exchange rate could return to a downtrend.
Current GBP, EUR Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3845, while the Euro to Pound Sterling (EUR/GBP) pairing was making gains around 0.7222.