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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Widened UK Deficit Fails to Dent Pound Today

After a rather turbulent reaction to the European Central Bank’s (ECB) latest raft of policy measures the Pound Sterling to Euro (GBP/EUR) exchange rate has been making fresh gains on Friday morning.

ECB Policy Decision Prompted Euro (EUR) Exchange Rate Volatility with Mixed Message from Draghi

Thursday proved to be a particularly volatile day for the Euro (EUR) as markets focused on the European Central Bank’s (ECB) March policy decision. Confidence in the single currency was initially dented by a more severe narrowing of the German trade surplus than traders had anticipated, with the country’s trade balance sinking from 19 billion to 13.6 billion Euros. When it was ultimately announced that the ECB would be enacting a wide raft of monetary loosening measures, including cuts in both the fixed and deposit rates as well as an expansion of quantitative easing, the Euro saw an even sharper slump in value.

However, as ECB President Mario Draghi consequently commented in his press conference that interest rates were not expected to go any lower, this downtrend promptly reversed. With speculation that the central bank is now out of ammunition there was no reason for traders not to buy into the weakened single currency, pushing the Pound Sterling to Euro (GBP/EUR) exchange rate to a weekly low of 1.2745.

UK Trade Deficit Widens as Pound Sterling to Euro (GBP/EUR) Exchange Rate Continues to Advance

This morning the GBP/EUR exchange rate has begun to make renewed gains, after Germany’s Consumer Price Index was confirmed to have slowed to 0.0% on the year in February. Weaker inflationary pressure within the Eurozone’s powerhouse economy has discouraged further Euro demand, particularly as markets reassess their earlier reaction to Draghi’s commentary.

Confidence in Pound Sterling (GBP) has been a little undermined after the UK’s visible trade deficit widened from -9.9 billion to -10.3 billion Pounds in January. While this was in line with market forecasts, the weaker figure does not appear to bode well for Chancellor George Osborne’s budget ambitions and Autumn Statement promises. Nevertheless, the increasing weakness of the single currency has seen the GBP/EUR exchange rate remain on an uptrend today.

GBP/EUR Exchange Rate Forecast: Improved Eurozone Industrial Production to Boost Euro

Next week the Euro may find further support on the back of the Eurozone’s January Industrial Production figure, with production forecast to pick up significantly on the year from -1.3% to 1.4%. Any signs of economic strength within the currency union are likely to fuel hopes that the ECB will not be prompted to take further policy action, a prospect that would result in additional demand for the common currency.

Current GBP, EUR Exchange Rates

At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher at 1.2845, while the Euro to Pound Sterling (EUR/GBP) pairing was slumped in the region of 0.7782.