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Pound Euro Exchange Rate Forecast: GBP Falls Despite Decent Inflation Data

  • Pound Euro Exchange Rate Forecast to Hover Below 1.20– Pair struggles to advance higher
  • Sterling (GBP) Rally Appears to Slow– Pound relatively flat in Friday trade
  • Pound Drops on Tuesday – GBP/EUR nears 1.19
  • Forecast: European Central Bank (ECB) Decision Ahead– No policy change expected on Thursday
  • Forecast: BoE August Meeting Under Three Weeks Away– Sterling to remain pressured

Pound Euro Exchange Rate Plunges on Tuesday

After continuing its gain throughout Monday on news that UK tech firm ARM Holdings had been bought by Japanese communications company Softbank, the Pound Euro exchange rate dropped on Tuesday.

Despite generally positive UK inflation data and underwhelming Eurozone economic sentiment surveys from ZEW, investors were set on selling the Pound from its recent highs, taking GBP/EUR down to around the level of 1.1930 by Tuesday afternoon.

News that the International Monetary Fund (IMF) had cut its UK growth forecasts in response to the nation’s vote to leave the EU saw Sterling shed further levels in the afternoon.

An increase in ‘safe-haven’ currency sentiment also caused the Pound to struggle, as the currently risky currency plummeted while investors sought out safer assets like the US Dollar.

(Previously updated 10:45 BST 19/07/2016)

GBP Down After UK Inflation Data

Ahead of the release of the UK’s latest consumer price figures, the Pound Euro exchange rate shed 0.4% to trend in the region of 1.1933.

Sterling was little changed against its European rival following the report’s release despite the rate of consumer price pressures climbing by more-than-forecast in June. Non-core annual inflation increased to 0.5% while core inflation rallied to 1.4%.

(Previously updated 18/07/2016)

The Pound Euro exchange rate struggled to maintain its best levels after completing considerable gains over the course of the week, indicating that despite its rallies the Pound was unlikely to climb much further and remains one of the most heavily pressured majors.

Regardless, GBP/EUR gained over two cents throughout the week, from its opening levels of around 1.1721 to briefly hit a weekly high of 1.2097 on Friday morning. Since then, the pair has slumped slightly and at the time of writing was hovering just below the key level of 1.20.

While the week’s UK inflation data is likely to be one of the main movers of the Pound Euro exchange rate, today’s speech from Bank of England (BoE) official Martin Weale is also likely to have an impact on Sterling.

His comments in relation to the BoE’s future stimulus plans could drive GBP lower if they indicate that a dramatic wave of measures are on the horizon.

Pound Sterling (GBP) Enjoys Bullish Rally on Surprise News

Investors were largely bearish when markets opened last week, expecting another session of Brexit jitters and uncertainty. This suddenly shifted when Britain’s new Prime Minister was confirmed just under two months before the expected date of September 9th.

Theresa May, who won the Conservative Leadership contest after other candidates either lost in early voting rounds or pulled out, became Britain’s new Prime Minister last Wednesday and succeeded David Cameron.

The confirmation blew away a cloud of political uncertainty, causing the Pound to rally throughout Monday and Tuesday.

The next surprise arrived amid expectations that the Bank of England’s (BoE) first post-Brexit policy meeting would deliver monetary stimulus to offset any potential Brexit damage.

Sterling plummeted on Wednesday as markets readjusted their positions on the currency, due to high bets of an interest rate cut or other easing measures.

However, the currency soared again on Thursday when the BoE shocked markets by leaving monetary policy frozen.

The central bank cited the uncertainty of current Brexit affects as a reason to not act too quickly in the hopes that some of the immediate concerns may fade.

Euro (EUR) Sturdies on Friday, Dragged up by Pound Cross-Flows

While the Euro dropped considerably against the Pound last week, the Eurozone currency improved against many other major rivals due to its close association with the Pound.

In terms of news, the Eurozone was relatively quiet over the course of last week, with global markets focusing almost entirely on Britain and the Pound amid the UK’s big political shifts.

Eurozone markets also calmed on the news that the Bank of England (BoE) did not alter monetary policy in its July meeting. This caused European Central Bank (ECB) stimulus bets to drop, which in turn removed some of the pressure on the Euro.

Lastly, Friday’s final June Eurozone inflation report came in largely as expected. While CPI was just barely above stagnation, at 0.1%, this was enough to slightly reassure markets who had feared that Brexit jitters could take the Eurozone into deflation in the run up to the EU Referendum.

As a result, Eurozone sentiment improved slightly amid hopes that Brexit shockwaves could be at least somewhat softened. According to CITY A.M. however, inflation was a flat 0% when including non-Eurozone EU nations like Britain.

Pound Euro Exchange Rate Forecast: Could Pound Sterling (GBP) Calm This Week?

After three hectic Brexit-panic filled weeks of trade, markets may be hoping for a little less uncertainty in the coming week to allow for more corrective trading.

The Bank of England’s (BoE) August policy meeting – at which rate cuts are highly likely to be announced – is already less than three weeks away, meaning Sterling advances may be more muted.

Markets will also continue to speculate on when the UK Government will incite Article 50 and begin the formal Brexit process now that Theresa May has officially become Prime Minister.

Uncertainty and Brexit jitters will remain high, which could cause the reaction to next week’s UK inflation figures to be bigger than it normally would be. For example, GBP is likely to spike if CPI prints above expectations and implies that post-Brexit inflation could be slightly softened.

However, a worse-than-expected June inflation score could indicate that pre-Referendum Brexit jitters had harmed the economy more than expected and would only be worsened in Q3.

The Euro will also remained pressured as the European Central Bank’s (ECB) Thursday meeting approaches.

Some analysts currently expect the meeting will focus on the Brexit rather than new monetary stimulus, and if the ECB hints that the Eurozone has weathered Brexit damage the Euro could surge.

On the other hand, the shared currency will likely plummet if ECB President Mario Draghi indicates that the Eurozone has been adversely affected by the Brexit and hints that the bank will soon react with stimulus.

As a result of these factors, GBP/EUR is likely to slip from its current highs, but may not suffer the big plummets seen two weeks ago.