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GBP/EUR Forecast: Could the Pound to Euro Exchange Rate Shed Gains This Week?

  • Pound Euro Exchange Rate Trends at 1.18 – Edges lower throughout Thursday
  • GBP EUR Unaffected by Eurozone Data – German trade surplus improves
  • GBP Update: Bank of England Meets Thursday – Cautious bank causes Sterling losses
  • EUR Forecast: German Growth Stats Due Friday – Movement could be limited until then

The Pound to Euro exchange rate slumped on Thursday, following the Bank of England’s (BoE) May policy decision. GBP EUR fell back to the level of 1.18.

As expected, the bank left UK monetary policy frozen at its loosest levels on record. What disappointed markets most was the lack of more short-term hawkishness.

Some investors had hoped that one more policymaker would join hawk Kristin Forbes and vote for a rate hike. However, the vote remained 7-1 in favour of keeping rates frozen, with Forbes as the sole dissenter.

Forbes’ term is due to end at the end of June.

The BoE also lowered its 2017 UK growth forecast and increased its inflation forecast. Meeting minutes included warnings about degrading living standards due to rising inflation and slowing wage growth.

[Previously updated 16:50 BST 10/05/2017]

Pound Holds Against Euro Before ‘Super Thursday’

While it struggled to hold its best levels, the Pound to Euro exchange rate spent most of Wednesday’s European session trending near the level of 1.19.

Sterling investors continue to speculate that the Bank of England (BoE) could take a more hawkish tone during its ‘Super Thursday’ meeting, or increase its inflation forecasts. This has bolstered GBP demand.

As well as BoE news, Thursday will see the publication of Britain’s March trade deficit update. Manufacturing and industrial production data will also be published.

[Previously updated 12:37 BST 10/05/2017]

Amid market anticipation for the Bank of England’s (BoE) ‘Super Thursday’ this week, as well as UK general election hopes and this week’s Euro selloff, the Pound Euro exchange rate has continued to rise.

Wednesday’s Eurozone data has had no notable effect on Euro exchange rates as the currency continues to be sold from its weekend highs.

France’s trade deficit lightened more than expected in March, while France and Italy’s March industrial production results also beat expectations.

Comments from European Central Bank (ECB) President Mario Draghi also had little effect on the shared currency. Draghi held a speech on Wednesday, defending the bank’s aggressive stimulus program that has been in place for the last year.

[Published 06:00 BS 10/05/2017]

Tuesday was a relatively uneventful session for the Pound to Euro exchange rate. The pair continued to edge higher throughout the day due to strong Pound sentiment and a continued Euro selloff. The day’s Eurozone data didn’t have much impact on forex markets.

GBP EUR began the week trading at the level of 1.18. After a brief drop to 1.17 on Monday, the pair rose to above the week’s opening levels again. GBP EUR has continued to edge higher since then.

Pound (GBP) Strong on UK Election and BoE Hopes

Investors are hoping for another good week in Pound trade as the UK general election on the 8th of June draws closer and the Bank of England (BoE) holds its May policy decision this week.

Last week’s UK PMIs were unexpectedly strong, continuing the trend of Britain’s economy being defiantly buoyant despite Brexit concerns.

As well as solid data, last week saw local elections held across Britain. These resulted in big gains for the ruling Conservative party and have been seen as something of a litmus test for the general election next month.

Investors continue to hope that if the Conservative party increases its Parliamentary mandate in the general election, it will give UK Prime Minister Theresa May more room to breathe in UK-EU negotiations and could make the Brexit process go more smoothly.

Sterling traders are also hopeful that the Bank of England may finally begin to hint at tighter monetary policy for the foreseeable future during its meeting this week.

The Pound has been appealing overall to investors, as it is still cheap and undervalued. According to strategists from BMI;

‘The currency remains cheap and speculative positioning remains heavily bearish. We expect (Sterling) to continue outperforming its peers over the coming months.’

Euro (EUR) Fails to Benefit from Eurozone Data

While market optimism for the Eurozone and the shared currency is up this week, investors have continued to indulge in profit-taking, selling the Euro from its highs making it easier for GBP EUR to advance.

Tuesday’s mixed Eurozone data had no notable influence on the Euro’s movement. Germany’s trade surplus improved from €20b to €25.4b in March.

German industrial production beat expectations of a -0.6% contraction by coming in at -0.4%. However, February’s industrial production figure was revised lower from 2.2% to 1.8%.

Italy’s March retail sales data also disappointed investors. Monthly sales were projected to improve to 0.2% but came in at 0%, while yearly sales failed to improve to 0.8%, printing a contraction of -0.4%.

Concerns about the next steps for French President-elect, Emmanuel Macron, have also limited Euro demand. Investors are anxious that he won’t accomplish much if his party performs poorly in the French legislative elections.

Pound to Euro Could Cool Unless ECB Officials Inspire Movement

Amid a lack of influential UK or Eurozone data due for publication until Thursday, the Pound to Euro exchange rate is unlikely to see any major shifts during Wednesday’s European session.

No UK data will be published until Thursday, though some low-influence Eurozone data will still be published today. This includes France and Italy’s March industrial production results.

European Central Bank (ECB) President Mario Draghi will also be holding a speech on Wednesday.

His speech will be followed on Thursday by speeches from other ECB officials, including Constâncio and Praet. Thursday will also see the publication of Ireland’s April Consumer Price Index (CPI) results and the ECB’s latest economic bulletin.

Thursday’s most influential event will be the Bank of England’s (BoE) May policy decision however. The BoE will publish its meeting minutes and inflation report at the same time it announces its policy decision.

Analysts do not expect any changes to be made to UK monetary policy. However, potential shifts in tone will be significant. Any hints that the BoE is becoming more optimistic or hawkish or any indication that the bank could tighten UK monetary policy in foreseeable future will bolster the Pound considerably towards the end of the week.

Demand for the Euro could improve if investors cool on the profit-taking selloff, but it’s more likely to be bolstered if Friday’s Eurozone data impresses.

Friday will see the publication of Germany’s preliminary Q1 Gross Domestic Product (GDP) results, as well as Germany’s final April inflation report. Eurozone industrial production data from March will also be published.