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Euro Pound Exchange Rate Strong Despite Queen’s Speech and BoE Hawkishness

  • Euro Pound Exchange Rate Returns to 0.88 – Just below best 2017 levels
  • Bank of England (BoE) Governor Carney Weakens Pound – Britain not ready for higher rates
  • EUR Forecast: Eurozone PMIs on Friday – How has Eurozone economy faired in June
  • GBP Forecast: Political Developments in Focus – Will Conservatives make a deal with DUP?

Euro Pound Exchange Rate Near Highs

The Pound has been unable to capitalise on this week’s hawkish Bank of England (BoE) comments or UK news, due to persistent political uncertainties surrounding the new minority Conservative government and Brexit negotiations.

The Euro, on the other hand, has held sturdy near its best levels due to stronger Eurozone economic and political outlooks.

Thursday’s Eurozone consumer confidence survey from June improved further than expected. The figure was forecast to edge up from -3.3 to -3, but instead came in at -1.3.

This was the print’s best confidence reading since 2001 and was the latest indication that the Eurozone’s economic recovery was improving.

[Previously updated 12:40 BST 22/06/2017]

While the Pound was boosted by hawkish comments from Bank of England (BoE) chief economist Andy Haldane on Wednesday, its gains were limited by economic and political uncertainty and this has allowed the Euro Pound exchange rate to hold most of this week’s gains.

On Thursday, EUR GBP was trending above the key level of 0.88 once again.

The pair trended relatively flatly on Thursday. The CBI’s latest industrial trends report did little to influence Sterling despite coming in well above expectations.

Meanwhile, the European Central Bank’s (ECB) latest economic bulletin was a refresher on a familiar tone from the bank. The Eurozone’s economic recovery continues to strengthen but weak energy prices weigh on inflation.

[Previously updated 16:59 BST 21/06/2017]

Euro Pound Slips after Hawkish Haldane Comments

After reaching over the key level of 0.88 earlier in the week, the Euro Pound exchange rate dropped back down to 0.87 on Wednesday as markets reacted to comments from Bank of England’s (BoE) chief economist, Andy Haldane.

In a contrast from BoE Governor Carney’s comments earlier in the week, Haldane argued the bank may have to hike UK interest rates later in the year if economic data remains resilient and inflation continues to rise.

However, the Pound’s recovery was limited.

Some analysts speculated that the bank’s policymakers may be attempting to edge up the Pound’s value with hawkish comments and help to stave off inflation. Others believe Haldane could become more dovish again if UK data published over the coming months is disappointing.

[Previously updated 13:02 BST 21/06/2017]

Wednesday saw the Queen’s speech at which the Queen read out the UK government’s legislative plans for the coming parliamentary session. Some of the Conservative manifesto’s more controversial elements were missing from the speech but it had no notable effect on Pound exchange rates.

Instead, investors bought into the Pound following surprising comments from Bank of England (BoE) policymaker Andy Haldane.

Typically one of the BoE’s more dovish members, Haldane argued that Britain’s surging inflation could mean the BoE may need to hike UK interest rates and slightly rein in loose monetary policy towards the end of the year.

The Euro Pound exchange rate dropped on the news, but the Pound’s gains were limited as the comments came so soon after BoE Governor Carney’s dovish comments on Tuesday.

[Published 06:00 BST 21/06/2017]

Despite a lack of fresh appeal for the Euro this week, the Euro Pound exchange rate advanced on Tuesday as the latest comments from Bank of England (BoE) Governor Mark Carney led to a Pound selloff. Today, GBP investors will be focused on potential political developments.

EUR GBP slipped slightly last week but looks to be on track to rise again. The pair began the week trading at around 0.8755, but on Tuesday afternoon the pair reached a high of 0.8828.

Euro (EUR) Benefits from Political Optimism

While the Euro has seen mixed movement so far this week, it has been able to advance against the Pound due to Sterling weakness. Optimism about the Eurozone’s political outlook also supported the shared currency.

The past week saw French President Emmanuel Macron win big in legislative elections, as his fledgling ‘en Marche!’ party won a big majority of around 350 seats alongside its ally, the Democratic Movement (MoDem).

This increased market hopes that Macron would be able to make sweeping changes in France, though analysts have pointed out he may face significant public opposition to some of his more unpopular plans.

Uncertainty about how successful Macron will be amid these obstacles has weighed on Euro demand.

However, the Euro also benefitted on Tuesday as German Chancellor Angela Merkel indicated she may consider a Eurozone finance minister or budget under the right circumstances. As part of his ideas for Eurozone reform, Macron has been a strong supporter of both ideas.

Some analysts speculate that French and German diplomatic ties could improve under Macron and even lead to stronger Eurozone integration and reform, which has made investors more hopeful about the future of the Euro bloc as a whole.

Pound (GBP) Drops as BoE Governor Carney Maintains Dovish Tone

After the first day of Brexit negotiations had little notable impact on Pound trade, Sterling plunged on Tuesday morning following the latest comments from Bank of England (BoE) Governor Mark Carney.

Carney argued that while other members of the BoE voted to hike UK interest rates last week, he still believed Britain wasn’t ready for higher interest rates. Carney indicated he intended to keep monetary policy loose amid the high uncertainties of the Brexit process.

On the subject of Brexit, the BoE Governor issued fresh warnings about the damage Britain’s economy could take if the process goes badly. He reminded that the BoE wouldn’t be able to stop Brexit damage entirely;

‘Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU. But it can influence how this hit to incomes is distributed between job losses and price rises.’

The Pound slumped following his comments and shed most of last week’s BoE-related gains.

Sterling trade also suffered following fresh warnings from credit rating agency Standard & Poor’s. Sovereign ratings chief Moritz Kraemer indicated that the S&P didn’t need to wait for Brexit negotiations to end before it makes decisions on Britain’s economy.

Euro Pound Forecast: Queen’s Speech in Focus

Wednesday will see the State Opening of Parliament, which will formally begin following a pre-prepared speech prepared by the UK government and delivered by the Queen. The speech sets out legislative plans for the coming year.

The Queen’s speech event is later than usual this year due to the snap general election. As the election ended in an unexpected way, with a hung parliament, the speech was delayed further. Ceremonial elements will be reduced as a result.

Market uncertainty remains about the stability of the new minority Conservative government, as well as UK Prime Minister Theresa May’s future in the role.

Potential failure to win the backing of a majority of MPs following the Queen’s speech could be seen as a vote of no confidence. However, as the Conservative party is likely to have the support of Northern Ireland’s Democratic Unionist Party (DUP) the speech is expected to go smoothly.

Any surprising political developments on Wednesday would have an impact on Pound exchange rate movement, but otherwise the Pound is unlikely to see a big shift in direction.

Wednesday will also see the publication of Britain’s public sector net borrowing data from May, but its effect on the Pound will be limited amid political uncertainty.

EUR GBP will be driven by the Pound for most of the week. Later in the week, key Eurozone stats such as consumer confidence data and preliminary PMIs from June could influence Euro demand and affect the Euro Pound exchange rate.