- Pound Euro Drops to 1.18 on BoE News – But remains above week’s opening levels
- BoE Leaves Rates Frozen as Expected – Investors disappointed by lack of hawkishness
- German Growth Stats Solid – German inflation meets expectations
- Forecast: UK Inflation Data Due Next Week – Strong data could boost Pound
Pound Euro Back to 1.18 after Bank of England News
Despite its major gains earlier in the week on Euro weakness, the Pound to Euro exchange rate had tumbled back to near the week’s opening level on Friday due to Bank of England (BoE) disappointment.
Investors continued to sell the Pound throughout the day and the Euro was bolstered by the day’s solid growth and inflation results.
GBP EUR briefly slipped to the level of 1.17 on Friday afternoon, but looked to end the week close to the level of 1.1800.
Next week’s data is likely to be highly influential for Pound Euro exchange rate trade. Britain’s April inflation stats will be published on Wednesday and Eurozone inflation will follow on Thursday.
[Previously updated 12:53 BST 12/05/2017]
After its Thursday falls, the Pound Euro exchange rate continued to trend lower on Friday. Investors continued to sell the Pound on Bank of England (BoE) disappointment on Friday morning and GBP EUR slipped closer to the week’s opening level.
Friday’s Eurozone data helped to bolster Euro demand as it indicated Germany’s economy was still performing strongly.
Germany’s Q1 Gross Domestic Product (GDP) projections improved from 0.4% to 0.6% quarter-on-quarter and came in at 1.7% year-on-year as expected.
April’s final German inflation data met expectations with a solid 2% yearly inflation rate.
[Published 06:00 BST 12/05/2017]
The Pound to Euro exchange rate dropped following the Bank of England’s (BoE) ‘Super Thursday’ announcements, as investors expressed disappointment that the bank had maintained its highly cautious outlook.
GBP EUR began the week at the level of 1.1801. After briefly reaching a high of 1.1923 on Wednesday the pair edged lower, before losing around -0.4% due to Thursday’s BoE news.
Pound (GBP) Plunges on Bank of England Disappointment
After solid performance earlier in the week, the Pound dropped following Thursday’s Bank of England (BoE) news.
As was widely expected, policymakers opted to leave monetary policy frozen at its lowest levels on record. However, investors were disappointed by the voter split.
In March’s BoE policy decision one policymaker, Kristin Forbes, dissented and voted to hike interest rates. This led to a 7-1 vote to leave rates frozen. Hopes that that split would deepen to 6-2 in May were let down when Forbes was once again the only policymaker to vote for a hike.
Other market hopes included speculation that the BoE may be pressured into hiking rates in the short to mid-term due to rising UK inflation. While the bank stated it may need to hike UK rates before late-2019, this is later than many investors had hoped.
What’s more, the bank’s 2017 growth forecast was revised lower due to concerns of citizen living conditions worsening from higher inflation and lower wage growth.
The meeting minutes concluded by stating that the bank’s current forecasts were made under the assumption that the Brexit process would be ‘smooth’. As a result, uncertainty is high.
BoE Governor Mark Carney stated in a press conference following the BoE meeting that the bank would prioritise jobs over inflation. As a result, even if inflation continues to spike the bank would rather more citizens were in work, which has been part of Carney’s argument for keeping ultra-loose monetary policy long-term.
Analysts took the day’s Bank of England news as a reflection of recent UK data which has indicated Britain’s economy may be beginning to slow. In fact, Howard Archer from IHS Markit believes the BoE is actually being too optimistic;
‘We maintain the view that the Bank of England is being too upbeat on the growth outlook with some pretty optimistic assumptions, particularly relating to the likely pick-up in wage growth. We also think Brexit uncertainties will hamper growth.
We maintain the view that the Bank of England is highly likely to keep interest rates at 0.25% through 2017 and 2018 – and very possibly beyond. In fact, we do not see the Bank of England edging interest rates up until 2020 given likely prolonged economic and political uncertainties centred on Brexit.’
Euro (EUR) Edges Higher as Profit-Taking Cools
The Euro trended lower for the first half of the week. After hitting highs before the election of Emmanuel Macron as the next President of France, the shared currency was sold from its highs in profit-taking.
Dovish comments from European Central Bank (ECB) President Mario Draghi limited the Euro’s strength further on Wednesday.
However, the Euro began to edge higher on Thursday as the selloff cooled. As a result, the Euro was able to benefit from Sterling weakness and push GBP EUR lower.
The week’s Eurozone data has also been relatively optimistic so far. Data from Italy and France beat expectations earlier in the week and Ireland’s April inflation stats came in well above expectations on Thursday. Yearly inflation rose from 0.7% to 0.9% despite being projected to slow to 0.1%.
Pound Euro Forecast: Key German Data Due Friday
The Pound is weaker after this week’s Bank of England (BoE) news, but GBP EUR remains well above the week’s opening levels.
The Pound to Euro exchange rate could see further losses on Friday if the day’s key Eurozone data impresses investors. However, the data would need to be much better than expected for the Euro to recover most of this week’s losses.
Germany’s preliminary Q1 Gross Domestic Product (GDP) results will be published, as well as Germany’s final April Consumer Price Index (CPI). Eurozone industrial production stats for March will also be published.
If German growth and inflation beat expectations, the Euro is likely to see an increase in demand as investors will perceive this as putting more pressure on the European Central Bank (ECB).
As for UK data that’s it for this week. Next week will see the publication of many key UK stats from April however, including inflation, jobless claims and retail sales.
March’s UK unemployment rate will also be published meaning there is plenty of data with the potential to influence Pound Euro movement next week.
