The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within a tight range on Monday morning.
After Italian lender UniCredit SpA predicted that the Pound would rally by over 6% against the US Dollar by the end of the first-quarter of 2016, the British Pound advanced versus many of its major peers. UniCredit analysts also predict that the Bank of England (BoE) will hike the cash rate within the first-quarter of 2015 irrespective of what the Federal Reserve chooses to do.
The Euro, meanwhile, strengthened versus many of its major rivals in response to news that Alexis Tsipras remained Prime Minister of Greece following a snap election. This eased investor concerns that a new leader would bring new policy and all the work done to secure financial aid could have been undone in a heartbeat.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3740.
The impact of Thursday’s Fed Rate Decision and the generally cautious tone of policymakers will continue to impact markets into the coming week, with the Euro (EUR) likely to fall further as the pressure increases on the European Central Bank (ECB) to loosen policy.
Dovishness from Federal Open Market Committee (FOMC) Bolstered the Euro to the Detriment of the GBP/EUR Pairing
After a bullish run on the strength of UK labour market data, the GBP/EUR conversion rate was sent into a slump late on Thursday as a result of the Federal Open Market Committee (FOMC) choosing to leave interest rates unchanged. With a marked decline in demand for the ‘Greenback’ (USD) the common currency (EUR) strongly benefitted, as pundits moved away from the weakened safe-haven in the hopes of securing stronger market positions. Although this initially drove the GBP/EUR pairing to a low of 1.3630, however, it was not long before Sterling (GBP) began to regain some of its ceded ground. Likely this was due to concerns over the decidedly increased chance of the European Central Bank (ECB) now being more inclined to engage in fresh monetary loosening measures in order to ensure that the single currency remains competitive and that the economies of the currency union are not adversely impacted.
Decreased UK Public Sector Borrowing Could Keep GBP/EUR Exchange Rate on an Uptrend
Domestic data from the UK will be fairly limited over the coming week, with the biggest movers likely to be Tuesday’s Public Sector Net Borrowing figure and the BBA Loans for House Purchase report on Thursday. The decreased likelihood of the Bank of England (BoE) voting to raise interest rates in the coming months as a result of the Fed’s distinctly dovish stance stands to weigh on the Pound, although suitably strong figures could restore some faith in the independence and outlook of UK policymakers. Continued signs of local recovery may prove enough to overshadow large worries with regards to the global slowdown and the contracting economy of China, particularly given the hawkish tone of some of BoE Governor Mark Carney’s recent comments.
Euro Exchange Rate Forecast: EUR May Remain Bearish on Increased Likelihood of Loosening from the European Central Bank (ECB)
With the results of today’s Greek general election likely to have some impact upon the appeal of the Euro the GBP/EUR exchange rate may benefit from a more uncertain result in the early week. As neither former Prime Minister Alexis Tsipras nor his main opponent Vangelis Meimarakis, leader of the New Democrats, seem in line to gain a majority tonight, it may still take some days for the shape of the Hellenic nation’s new government to emerge.
Later in the week the Eurozone Consumer Confidence Survey, a raft of domestic PMIs and the German IFO indices for September stand to influence the movement of the single currency. Sufficiently strong showings could reassure traders, although the persistent potential of monetary loosening measures to come from the ECB may still prove too dovish to overshadow.