UPDATE
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending within a tight range on Monday morning.
As the European Central Bank (ECB) launches quantitative easing, the shared currency strengthened versus many of its major peers. The gains will be potentially short-lived, however, with Greece proposing a referendum after creditors rejected their latest program of debt repayment.
The Pound, meanwhile, strengthened against many of its major peers after traders speculated that QE in the UK’s most active trading region will boost the British economy. However, with the general election looming ever close, the gains have been somewhat laboured.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7207.
At the close of last week, the Euro to Pound Sterling (EUR/GBP) exchange rate softened by around -0.40%.
After European Central Bank (ECB) President Mario Draghi gave a speech following a policy meeting which saw rates unchanged, the single currency slumped. Draghi’s comments were considered vague as he provided no clear timing for the end of quantitative easing. There was also little information given about the bonds used to finance the operation.
The Pound, meanwhile, stuttered a little after a strong week of positive data results. This was due to the Bank of England (BoE) cutting their inflation expectation for the next 12-months. However, with many of the Monetary Policy Committee (MPC) members agreeing that deflation was a temporary phenomena, the Pound’s declination has been minimal.
Euro (EUR) Exchange Rate Forecast to Soften after ECB Launch QE
Although markets were originally favourable towards the ECB’s long-awaited QE launch, opinion is divided as to whether it will prompt economic recovery, or whether it will just delay the mounting issues in the smaller Eurozone economies. Given that the central bank has been criticized for the vague information provided, there is a high likelihood that the Euro will soften from dwindling sentiment.
There will be several data publications of interest to those invested in the Euro over the course of next week, however, if recent data is anything to go by it is unlikely to have a significant impact on Euro movement.
German Trade Balance, Eurozone Investor Confidence, German Consumer Price Index and EU-Harmonised German CPI have the potential to provoke volatility for the single currency.
Pound Sterling (GBP) Exchange Rate Forecast to Strengthen on Positive Data
Given that British data has, on the whole, printed impressively over the past few weeks; there is every chance that the coming week’s data will follow the trend. Should that be the case, the Pound will advance as rate hawks speculate towards a sooner-than-anticipated lending rate revision.
‘We expect the first BoE hike in August this year, around six months earlier than is being fully priced in by financial markets,’ said Daniel Vernazza, an economist at UniCredit.
In terms of influential domestic data; BRC Sales Like-for-Like, Industrial Production, Manufacturing Production, NIESR Gross Domestic Product Estimate, House Price Balance, Visible Trade Balance, Trade Balance Non EU, Total Trade Balance and Construction Output will be of interest to those invested in the Pound.
With the effect of quantitative easing unlikely to be felt until it has been fully established, the shared currency will struggle to make any significant gains amid mounting uncertainties.
Any hawkish statements from MPC members will be pounced upon by traders and result in a significant Sterling surge.
With both Europe and Britain’s economic dockets relatively sparse over the coming week, there is the potential for limited volatility.
At the close of last week, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7204.
