Improved Chances of a Bank of England Rate Rise Boost GBP/EUR Exchange Rate as the Euro turns Dovish ahead of Bundestag Vote
With the Greek bailout set to pass through various European parliaments in the upcoming days Thursday’s European Central Bank (ECB) repayment deadline remains under question. The Bundestag is due to vote on the proposal on Wednesday and, as German ministers appear to have lost few of their reservations over the weekend, the sentiment surrounding the common currency (EUR) is consequently somewhat cautious.
Meanwhile, Bank of England (BoE) Monetary Policy Committee (MPC) member Kristin Forbes has publically commented that holding off on an interest rate rise for much longer would be a counterproductive move for the UK economy. Suggesting that a hike could still be on the table in the near future this has returned some strength to the Pound (GBP) today, prompting the GBP/EUR exchange rate to trend upwards in the range of 1.4141.
As the European Central Bank (ECB) repayment deadline looms the GBP/EUR exchange rate should see some strong fluctuations this week, with the Pound (GBP) hoping for resurgence on upcoming UK data.
GBP/EUR Exchange Rate Remained Bearish as the Third Greek Bailout Progressed Through Parliament, Euro (EUR) Held Strong
The Pound (GBP) has undeniably struggled over the past week, with relatively limited domestic data unable to mitigate the continued dovishness of the currency. Traders have not been quick to forget the dismay of ‘Super Thursday’ and its effective banishment of a Bank of England (BoE) interest rate rise to the first quarter of next year. Although the three month for June Unemployment Rate remained consistent at 5.6% the Employment Change figure revealed a larger than anticipated decline of -63,000 positions. Conversely, UK Construction Output increased by less than forecast to ultimately round out a sluggish week for Sterling, with the GBP/EUR exchange rate still in a persistent downtrend.
Much of the movement for the GBP/EUR exchange rate was driven, however, by events in Greece, as the nation’s third bailout package progressed. An ‘in principle’ agreement was reached on Tuesday, with the Greek parliament voting to approve the measures early on Friday morning after a night of intensive debate. This only somewhat overshadowed a raft of GDP shortfalls for Eurozone nations, as Finland remained firmly in recession and second quarter Greek growth managed to outstrip a number of the other member states. With the single currency (EUR) buffeted by the disappointment and uncertainty surrounding the impending vote of Eurozone finance ministers on the bailout proposal, the GBP/EUR pairing made slight gains to reach a high of 1.4018.
Potential for Pound (GBP) Resurgence Predominantly Resting on Upcoming UK Consumer Price Index Result This Week
A number of potential rallying points will arise for the Pound this week, from the UK Consumer Price Index data on Tuesday to Friday’s Public Sector Net Borrowing figure. Given the crucial role that the current rate of inflation plays in the sentiment of the Monetary Policy Committee (MPC), and consequently the Bank of England (BoE) Rate Decision, a strong showing on the CPI would offer a significant boost to Sterling. Any encouragement for traders to expect the first interest rate hike to arrive sooner rather than later will be decidedly beneficial.
Thursday’s Retail Sales also bear watching. Any further weakening in sales growth would likely reinforce the Pound’s softened state and tone down any benefits the GBP/EUR pairing might have seen from the results of the Consumer Price Index.
Fortunes of Euro (EUR) Stand to Shift as European Central Bank Deadline Approaches, GBP/EUR Pairing Could See Surge on Any Bailout Holdups
By contrast it will be the Euro that faces something of a dearth of economic releases in the coming days, with the only major figures being Consumer Confidence readings for Germany and the Eurozone which are due out on Friday. An improvement on either, or both, of these would certainly shore up the common currency further, although they will more than likely be eclipsed by developments in the Greek bailout saga.
Thursday remains a key date for the fortunes of the Eurozone as the deadline for Greece’s next repayment to the European Central Bank (ECB). To avoid a default the various European parliaments, including the less than enthusiastic Bundestag, must also approve the proposals early in the week in order to leave time for the first tranche to be implemented. Failing that a contingency bridging loan would need to be quickly drafted into service. As the day approaches the GBP/EUR exchange rate should be expected to experience some significant movement, the direction dependent on how far down to the wire events end up going.
Current GBP, EUR Exchange Rates
At time of writing the Pound Sterling to Euro (GBP/EUR) exchange rate was trending narrowly around 1.3995, with the Euro to Pound Sterling (EUR/GBP) pairing equally slow moving at 0.7144.