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GBP/EUR Exchange Rate Forecast to Tick Higher despite Mixed UK Trade Data

Pound euro exchange rate

  • Pound Sterling exchange rates tick higher despite ‘Brexit’ uncertainty
  • Euro conversion rates  weak on Greek debt crisis
  • Positive European ecostats limit Euro depreciation
  • GBP/EUR exchange rate forecast to hold gains

GBP/EUR Advances Despite Disappointing Sales Figure

Although the UK’s Like-for-Like Sales figure for April came in at -0.9% on the year rather than the 0.5% expected, the Pound Sterling to Euro (GBP/EUR) exchange rate was left unmoved by the release.

Any Pound weakness which may have been triggered by the result was largely offset by Greek concerns and a sub-par German industrial production report.

Whilst the UK’s trade data looked initially positive, with March’s trade deficit narrowing beyond expectations, the quarterly reading showed the deficit widened to the highest in 8-years. This failed to prevent Sterling gains, however.

As it stands the Pound Sterling to Euro (GBP/EUR) exchange rate is trading in the region of 1.2699


Pound Sterling (GBP) Exchange Rate Forecast to Struggle as Traders Look Ahead to BoE Rate Decision

The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within a tight range on Monday afternoon.

Despite a lack of influential British economic data to provoke volatility, the Pound Sterling softened versus most of its currency rivals. The depreciation is the continuation of weakness initiated last week as ‘Brexit’ uncertainty continues to divide sentiment. Fears that the relief rally following favourable opinion polls was very much overdone has seen continued Sterling weakness over the past week or so.

Traders will be looking towards this week’s key event, the Bank of England (BoE) interest rate decision and accompanying quarterly inflation report. The publication of the inflation report alongside the interest rate decision and release of meeting minutes is known as ‘Super Thursday’.

Whilst the central bank is not expected to make any changes to policy outlook at this time, the meeting minutes are feared to include the prospect of major changes in the event of a ‘Brexit’. According to the Sunday Times BoE Governor Mark Carney has been approaching major banks to see if they would be able to absorb a rate reduction.

‘Whether the vote is to ‘remain’ or ‘leave’, that the next move in rates could be down rather than up is looking a less distant possibility,’ said Oxford Economics’ Martin Beck.

The inflation report is also likely to be hugely significant. Any sign that policymakers have reduced inflation forecasts will weigh heavily on demand for the Pound which is already struggling against the prospect of slow second-quarter growth as evidenced by poor domestic sectoral data.

The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2653.

Euro (EUR) Exchange Rate Forecast to Trend Statically on Greek Debt Concerns

Although European ecostats have produced positive results thus far on Monday morning, the single currency is holding a weak position versus most of its major peers. March’s German Factory Orders bettered expectations on both a monthly and annual basis. Additionally, Eurozone Investor Confidence came in at 6.2 in May; bettering the median market forecast rise from 5.7 to 6.0.

These data results were not overly impactful, however, given uncertainty regarding Greece’s debt outlook as the Hellenic nation struggles to secure bailout funds.

International creditors will meet to decide whether to give Greece its latest debt relief package or call for greater reforms. The political tension in Greece is once again major cause for concern with citizens becoming increasingly likely to resume the major protests seen last year.  Prime Minister Alexis Tsipras promised no further austerity measures after the last list of extensive reforms, so the issue is very thorny politically.

‘The nature of the contingency package could determine the government’s fate, as it would be very difficult to secure the required parliamentary majority for detailed measures,’ Wolfango Piccoli, a London-based analyst, said recently. ‘The risk of snap polls could increase significantly if the lenders decide to play hardball.’

Europe is currently fighting the prospect of division from multiple angles, and if Greece is refused financial aid there will be another call for a ‘Grexit’ from the Eurozone. Any sign that a ‘Grexit’ is back on the cards will likely weigh very heavily on demand for the single currency.

The Pound Sterling to Euro (GBP/EUR) exchange rate dropped to a low of 1.2604.

GBP/EUR Exchange Rate Forecast to Trend within a Limited Range on Reduced Market Sentiment

Given the absence of further domestic data, and with both the Pound and the Euro facing downside risks, there is a good chance that the Pound Sterling to Euro (GBP/EUR) exchange rate will continue to trend within a limited range.

With that said, the Euro may climb higher if US data prints disappointingly. However, increased safe-haven demand is likely to keep the US Dollar ticking slightly higher versus its closest rivals.

Tuesday is likely to see GBP/EUR exchange rate volatility with trade balance data due for both the UK and Germany.

The Pound Sterling to Euro (GBP/EUR) exchange rate reached a high of 1.2710 during Monday’s European session.