- GBP Dented by Poor Employment News – Growth in labour market slowing
- German Producer Prices Weigh on Euro – Draghi’s Comments in focus
- UK Retail Sales Decline – But Pound stands firm
- ECB Leaves Rates on Hold – GBP/EUR still higher
Poor Eurozone PMI Allows GBP/EUR to Skyrocket on Friday
Market reaction to Thursday’s European Central Bank’s (ECB) latest decision rates was soft, as the bank announced that rates would be frozen, hinting at an elongated stimulus period with possibly lower rates until at least March 2017.
However, the GBP/EUR exchange rate leapt up almost 1.0% during Friday’s session after the Eurozone’s preliminary April PMI printed worse-than-expected, rounding off a disappointing week for the shared currency.
The key German Composite print came in at 53.8 despite forecasts that it would improve from 54.0 to 54.2. The general Eurozone Composite PMI scored a similar drop, falling at 53.0 from the previous figure of 53.1.
Sterling, on the other hand, was afforded a bullish boost in sentiment after US President Barack Obama officially announced his support for Britain’s ‘Remain’ in the EU campaign.
The Pound Sterling to Euro (GBP/EUR) exchange rate continued trending higher on Thursday despite UK consumer spending data disappointing forecasts and the European Central Bank (ECB) taking no action at its latest policy meeting.
Sterling spent the European session trending higher against a number of its peers, achieving a high of 1.2718 against the Euro.
The Pound Sterling to Euro (GBP/EUR) exchange rate has considerably slowed the advances made earlier this week after Wednesday’s data weighed on the Pound and investors began to adjust their positions to prepare for Thursday’s key European Central Bank (ECB) decisions.
After hitting a two-week-high of 1.2684 on Tuesday, Sterling’s gains seem to have slowed as GBP/EUR recoiled a little. At the time of writing, the pair trended in the region of 1.2657.
Sterling’s (GBP) Bullish Run Interrupted by Disappointing Employment Data
The ‘Brexit’-weary Pound has finally enjoyed a solid run of gains, with profit-taking investors and positive data helping to boost the currency higher.
Most recently, UK stocks and a poll conducted by The Telegraph indicating stronger turnout for the EU Referendum’s ‘Remain’ campaign pulled GBP higher and improved sentiment towards the increasingly volatile Pound.
Unfortunately it seems as if Sterling’s bullish week was interrupted on Wednesday by the release of worse-than-expected employment data, which saw unemployment rising to 1.7 million.
‘”Last week the Bank of England said that concerns about the EU referendum had begun to affect the real economy,” said Ben Brettell, senior economist at Hargreaves Lansdown.
“The increase in unemployment announced today adds some weight to that hypothesis. It’s possible businesses are delaying decisions about hiring and investment until after June’s vote, which could lead to a slowdown in the first two quarters of this year.’
Brettell added however, that the UK labour market was still healthy, with the BBC noting that;
‘The unemployment rate remained at 5.1%, which is still down on the same time last year, when it was 5.6%.’
The Pound’s losses are likely also related to disappointment in average weekly earnings, which printed at 1.8% despite estimates of 2.3%. Bank of England (BoE) Governor Mark Carney previously stated that an improvement in wages would lead to higher bank rates, so the result disappointed investors.
Euro (EUR) Uninspired on Data, Investors Wary Ahead of ECB Announcements
The Euro has been unable to pull away and take advantage of a weakening Pound, as the shared currency has been too weighed down by investor nerves ahead of Thursday’s European Central Bank (ECB) decisions.
Light data released on Wednesday was unable to help give EUR a boost, after the German producer price report came in negatively. The year-on-year figure scored -3.1%, a bigger contraction than the previous -3.0%.
Investors generally favouring riskier currencies for quick profits were also turned off by the Euro, which looked unlikely to make any considerable gains before Thursday.
Concerns towards the ECB have kept centre stage for Euro investors this week after quiet data left analysts looking towards the Euro’s movement throughout 2016.
A poll released by Bloomberg on Monday indicated that most analysts expect the ECB to take action in the second half of the year, with most predicting that further easing will be put into effect in September – news that undermined Euro support.
Pound Sterling to Euro Exchange Rate Forecast: GBP/EUR Rally Could Continue on a Dovish ECB
GBP/EUR movement will likely experience fluctuations ahead of today’s key announcements for both the UK and Eurozone.
In what is set to be the last series of data released this week, Britain will release March’s retail sales data, as well as reports for public sector borrowing.
While most data is forecast to perform worse than previous prints, better-than-expected scores could help buoy Sterling towards the end of the week.
Markets are much more likely to set all eyes on the European Central Bank (ECB) tomorrow. The ECB is due to make its latest decisions on interest rates, deposit rates and lending – and the first decisions since March’s controversial and extreme easing measures were announced.
Currently, the ECB is not expected to take action again until Q3 2016, but policymakers may continue the dovish tone adopted in previous weeks or offer some insight as to what easing policies are the next frontrunners.