- Euro Buoyed by ECB Policymaker – Coeure claims there are currently no plans for further easing
- BoE Policymaker Says Cuts Possible Even in ‘Remain’ Scenario – Pound slips from highs
- Forecast: Eurozone PMI Mixed – Composite measure dips
- Forecast: British GDP Ahead – Preliminary Q1 scores release on Thursday
The Euro to Pound Sterling (EUR/GBP) exchange rate fell considerably last week as markets reacted to tumbling ‘Brexit’ bets and light Eurozone data left the Euro generally uninspired.
After losing around -150 pips and briefly hitting a three-month-low of 0.7651, EUR/GBP recovered slightly on Friday, trending in the region of 0.7720 as the week’s trading session drew to an end.
The EUR/GBP pairing softened slightly as markets reopened on Monday and the Eurozone published some mixed preliminary Manufacturing, Services and Composite PMI reports.
While the figures for Germany came in better-than-forecast, with the German Services gauge notably climbing from 54.5 to 55.2, all three figures for the Eurozone as a whole fell short. The region’s Composite PMI index slipped from 53.0 in April to 52.9 in May despite forecasts for a reading of 53.2.
After the reports were published the Euro to Pound Sterling exchange rate fell -0.2% to trend in the region of 0.7720.
Tuesday’s ZEW Current Situation and Economic Sentiment Surveys for Germany and the Eurozone as a whole are likely to be the main cause of EUR/GBP movement.
Last week…
Euro (EUR) Attempts Recovery After ECB News
The Euro failed to maintain its strength last week and was beaten down by the Pound, but was bolstered slightly later in the week after European Central Bank (ECB) meeting minutes and policymaker statements revealed a less dovish tone than expected.
While the minutes report indicated that further easing was still possible over the coming year, it focused more on asking European politicians for assistance in the Eurozone’s economic recovery.
Since then, numerous ECB policymakers have made statements urging markets to be patient with the current monetary easing policies. This came as a response to news that Eurozone inflation was at -0.2% in April.
Reuters reports;
‘Slovak central bank chief Jozef Makuch also said that no further measures were needed now, adding that if future steps become necessary, the ECB needed to be careful about rate cuts.
“Interest rates can still be lower still and we are now testing how low they can go,” Makuch said. “But if this tool must continue to be used, then I must urge caution so (we do not) bring about a totally counterproductive threat to financial stability.”’
This followed comments made by ECB Executive Benoit Coeure that there were currently no plans for the ECB to cut rates further. As a result, Euro sentiment increased slightly.
Pound (GBP) Slips From Highs on BoE Dovishness
Sterling rallied against the majority of its rivals last Wednesday following the latest EU Referendum polls. May’s polls revealed a strengthening lead for the ‘Remain’ campaign, causing ‘Brexit’ bets to plummet and the Pound to soar.
The Pound’s rally was temporary however, as the currency’s sudden strength saw investors indulge in a bout of profit-taking. Sterling’s strength was further undermined on Friday, when Bank of England (BoE) policymaker Jan Vlieghe claimed that the central bank could still cut rates even if the UK votes to remain in the EU in June.
‘Following a vote to remain, I would like to see convincing evidence of an improvement in the economic outlook, in line with the forecasts in the May Inflation Report. If such improvement is not apparent soon, this will reduce my confidence that inflation is likely to return to the target within an acceptable time horizon without additional monetary stimulus.’
He added that the challenges the BoE would face if the UK votes to ‘Leave’ would be entirely different.
As the strain of ‘Brexit’ debates has been widely seen by investors as a key reason for poor UK economic news in 2016, news that it could potentially continue to struggle afterward dented Sterling appetites.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: Key Eurozone PMI Releases on Monday
The Euro is likely to take point in EUR/GBP movement in the first half of next week as key preliminary Manufacturing, Services and Composite prints for both Germany and the Eurozone are released on Monday morning – followed by Eurozone consumer confidence in the afternoon.
Tuesday’s economic calendar is also busy for the Eurozone, with Germany’s final Q1 Gross Domestic Product (GDP) set for release. The latest ZEW economic sentiment surveys for Germany and the Eurozone will also be released.
Meanwhile, British public finance data will be released on Tuesday which could inspire some movement in the Pound. However, failing that, no key UK data is due until Thursday’s release of highly anticipated preliminary Q1 GDP.
ECB policymakers are expected to speak throughout the week and could follow up on this week’s ‘wait and see’ consensus.
Also worth noting, Monday the 23rd marks exactly one month until Britain’s EU referendum in June. As a result, Sterling could experience pressure as markets grow uncertain.
