The approach of key Eurozone data is keeping traders on hold this morning, causing EUR GBP exchange rates to fluctuate around opening levels.
- EUR GBP stuck around opening levels – German unemployment edges lower
- Pound uncertain after BoE report – RBS fails stress tests, but system solid overall
- Eurozone CPI data incoming – Small acceleration on the back of oil price rises likely
- EUR GBP exchange rate forecast – Mario Draghi speech to have little impact
Meanwhile, the latest assessment of the UK’s financial stability contains both good and bad news, leaving investors on an uncertain footing.
Commodity Market Volatility Sees Euro Gains Easing Back
Update, 14.23. 30/11/2016; The uncertainty in the oil markets has continued to keep trading conditions volatile today, with the Euro’s earlier gains against the Pound now edging back towards opening levels. Meanwhile, the European Stability Mechanism has produced a short document outlining the potential ways in which it could relieve some of Greece’s debt burden over the next four decades. While just a proposal, the report is a hopeful sign that the stricken Eurozone member may be in line for additional and much-needed support.
EUR GBP Strengthens as Investors get to Grips with UK Financial Stability Report
Update; EUR GBP exchange rates have now climbed firmly into positive territory following the BoE’s Financial Stability Report. Shares in RBS have plunged 2.7% on the news it failed the latest stress tests. While the Pound initially held around opening levels, the day’s key Eurozone data is giving traders more incentive to buy EUR.
EUR GBP Remains Soft ahead of Key Eurozone Data
There is little trading action for the Euro so far today, with several high-impact data releases on the way keeping investors at bay for now. German unemployment change has shown the forecast -5,000 reduction in the number of people out of work, meaning the unemployment rate remains at a seasonally-adjusted 6%.
Consumer price index data is due out later, followed by a speech from Mario Draghi, the European Central Bank (ECB) Governor.
Another round of profit-taking on the US Dollar, as the endless seesawing of Fed hike excitement and overvaluation fears continues, has put the ‘Greenback’ on the decline, helping to buoy the Euro.
Pound Euro Exchange Rate Wobbles after BoE Financial Stability Report
The Pound is performing sluggishly today after the momentum from yesterday’s advance wears off. Investors aren’t entirely sure what to make of the Bank of England’s (BoE) latest Financial Stability Report. Overall, Governor Mark Carney believes that the UK’s financial system is still strong enough to whether the storm of another global financial crisis.
The Bank now runs regular stress tests as part of the stability report – something implemented after the financial crisis to ensure the same doesn’t happen again. They’re not taking any chances; this year’s stress scenario involved banks losing five times as much capital in the space of two years as happened during the financial crisis.
The fact the tests are so rigorous is helping investors to recover from the shock that Royal Bank of Scotland failed them. RBS was the weakest of the bunch last time round, barely scraping a pass, so a worsening of its position will not be welcomed. The public still owns three quarters of the bank, so the potential for it to collapse in a global crisis could see the Treasury having to foot the bailout bill again, with precious few pennies left in the coffers as it is.
According to BBC Business Editor Simon Jack;
‘The Bank’s Financial Stability Report has plenty of reasons for concern.
The UK’s reliance on foreign money to finance its trade deficit – the so-called “kindness of strangers” – is highlighted, along with the vulnerability of the UK’s role in providing financial services to the European Union.
Add to that the rapid increase in debt in China and the world looks like a dangerous place – not for the first time.’
So overall it’s a mixed picture. The system is strong enough to withstand shocks (hurrah), but several of the UK’s banks are weak (boo) – albeit taking action to improve – and the outlook isn’t exactly rosy.
Euro Pound Exchange Rate Forecast; Key Eurozone Data to Keep Euro in Control of Pairing Movement
The UK only has the results of the Bank of England’s regular bond buying operation left to release today – investors don’t care about those unless the whole thing goes horribly wrong (as happened the first time, when the BoE failed to find enough assets to buy).
This means that the Eurozone data left on the calendar will be firmly responsible for defining the path of the Euro Pound exchange rate. The muted reaction to a positive movement from German unemployment is due to the closeness of the Eurozone consumer price index release for November.
Overall consumer price growth is expected to have accelerated from 0.5% to 0.6%, while core price growth is predicted to remain a steady 0.8%. Considering the uptick in non-core prices is likely due to rising energy costs (crude oil has been on a bit of a rollercoaster these past few weeks), investors may not find it particularly cheering. No sign of price slowdown will be welcome, but no change in the pace of price growth isn’t massively encouraging, especially with a discussion on what to do with the enormous quantitative easing programme just around the corner.
An above-forecast CPI reading will likely support EUR GBP exchange rates higher, while a downside surprise could send the common currency tumbling.
Mario Draghi is set to speak later today, although this is unlikely to do much for the Euro. Draghi, while usually a bowser of dovish sentiment, has already spoken several times over the past few days. He’ll likely repeat earlier assertions that, A) Eurozone monetary policy needs to remain accommodative (which investors already know) and that B) Eurozone governments need to increase their fiscal stimulus, as the ECB can’t be held entirely responsible for driving growth in the currency bloc.
Interbank EUR GBP Exchange Rates
At the time of writing, the EUR GBP exchange rate was trading around 0.85, while the GBP EUR exchange rate was trending in the region of 1.17.
