Update
On Thursday morning the Euro to Pound Sterling (EUR/GBP) exchange rate dived by around -0.7%.
As traders await the Bank of England (BoE) interest rate decision the Pound edged higher versus many of its peers. The appreciation can be linked to hopes that the corresponding meeting minutes will be far more hawkish than the previous publication. The Euro, meanwhile, cooled versus its rivals after European Central Bank (ECB) officials warned of downside risks to inflation and growth.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7207.
Previously…
EUR/GBP Conversion Rate Predicted to Hold Gains despite Weaker-than-Forecast Eurozone Household Consumption
The Euro to Pound Sterling (EUR/GBP) exchange rate surged by around 0.9% on Tuesday afternoon.
In the opening stages of the European session the common currency held gains over its currency rivals following a recent spate of profit-taking. Whilst the current trade weight of the Euro is considered low, signs of a sustained appreciation has the potential to spook policymakers into cutting the deposit facility rate in line with recent (and missed) expectations. With that being said, however, there is the potential that European Central Bank (ECB) policymakers may be able to avoid altering policy further if the Federal Reserve hike the overnight cash rate next week. This is because the likely US Dollar strength that would follow a rate hike will cause the Euro to weaken.
As today’s session progressed the Euro added to opening gains after Eurozone Gross Domestic Product advanced in line with expectations in the third-quarter. Commenting on the GDP figures, the research team at BBH stated: ‘The Eurozone confirmed Q3 GDP grew 0.3% for a 1.6% year-over-year pace. What was important about today’s release though were the details available. Contrary to conventional wisdom, the weak Euro is not spurring an export-led expansion. It is still primarily an internal affair. Household consumption rose 0.4%. A little less than expected, but a touch better than the revised 0.3% increase in Q2. Government expenditures, rose 0.6%, twice the pace the market expected and what was seen in Q2. Gross fixed investment was disappointingly flat (consensus 0.2%), but the Q2 figure was revised to 0.1% from -0.5%.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7261.
GBP/EUR Conversion Rate Predicted to Hold Losses after British Manufacturing Slowed Beyond Expectations
After British manufacturing data failed to meet with expected growth in October the Pound slumped versus its peers. Recent data suggests that the UK will be relying on services growth to drive economic expansion in the fourth-quarter. Both the construction and the manufacturing sectors have struggled against external risk factors, bearish commodities and a lack of skilled workers. One encouraging sign for the UK, at least, is that the services sector accounts for the largest portion of British GDP and has seen robust growth in recent weeks.
Many economists will not be discouraged by the rising value of the single currency versus the British asset. If the Pound to Euro trade weight continues to fall it has the very real potential to encourage the Bank of England (BoE) into hiking the benchmark interest rate ahead of expectations. However, a Fed rate hike next week could be a fork in the road as the chances of a Euro downtrend are high.
The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7196 today.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: BoE Rate Decision in Focus
With an absence of further domestic data today the Euro to Pound Sterling (EUR/GBP) exchange rate is likely to hold gains for the remainder of Tuesday’s European session. Tomorrow may see EUR/GBP movement with German Trade Balance data due for publication. However, a distinct lack of influential British ecostats on Wednesday could see quiet trade for the EUR/GBP conversion rate.
Thursday should be far more volatile for those trading with the EUR/GBP pairing as the Bank of England (BoE) interest rate decision will be due. Whilst the central bank policymakers are not expected to make any changes to policy at this time, the accompanying minutes and following press conference should give some insight into outlook.
The Euro to Pound Sterling (EUR/GBP) exchange rate reached a high of 0.7280 during Tuesday’s European session.