The Pound Euro exchange rate completed a week of losses last week, the first five-day GBP EUR decline since late-August. Next week’s Pound Euro exchange rate forecast will focus largely on August’s inflation results, as well as the Bank of England’s (BoE) first meeting since it introduced an aggressive stimulus package in August.
While further stimulus from the BoE isn’t likely at this juncture, the tone of meeting’s minutes is likely to indicate whether or not further stimulus is planned in the immediate future. Any hints of a further reduction to interest rates or indications that the central bank is considering employing other measures is likely to be Pound-negative, while a neutral stance and a wait-and-see attitude is likely to lend Sterling support.
- Pound Euro Forecast to Advance Next Week – If optimistic August trend continues
- GBP/EUR Uninspired on Friday – UK and Eurozone data disappoints
- Update: UK Inflation Stats Disappoint – Eurozone’s still due on Thursday
- Forecast: Bank of England Meet on Thursday – First decision since August stimulus package
GBP/EUR Exchange Rate Forecast to Plunge Lower Unless Job Figures Impress
Despite market expectations, the Pound to Euro exchange rate plummeted on Tuesday in response to disappointing UK inflation results and the exchange rate forecast could be even more dire if Wednesday’s stats disappoint.
Britain’s August Consumer Price Index (CPI) came in at 0.3% month-on-month, improving from 0.1% but failing to meet projections of 0.4%. The yearly score was even more disappointing, failing to improve to 0.7% by remaining at 0.6%.
While still better than inflation scores from earlier in the year, it disappointed investors who had speculated the low value of the Pound could cause consumer prices and inflation to surge after the Brexit vote.
The low score also offset hopes that the Bank of England (BoE) could respond to spiking inflation by tightening monetary policy again. However, analysts suggest that the bank could still be leaving the door open for further easing – especially if data continues to disappoint.
As a result, investors hope that Britain’s jobless claims results from August, and unemployment figures from May to July impress when they’re published on Wednesday.
(Previously updated 16:01 BST 12/09/2016)
GBP EUR Exchange Rate Forecast to Advance on Tuesday
The exchange rate forecast going ahead into Tuesday is little changed from Monday morning’s forecast, as the Pound to Euro exchange rate has seen little in the way of inspired movement throughout the day.
While GBP/EUR was able to hit highs above 1.1860 briefly later in the day, the pair generally fluctuated with an upward bias and struggled to hold its best levels.
Amid a lack of key data, investors bought into the Pound ahead of Tuesday’s key session, which will see a slew of British and Eurozone reports published.
If Britain’s upcoming August inflation scores beat expectations and indicate that consumer prices had spiked due to the plummet in GBP value, this could prove troublesome for the Bank of England’s (BoE) easing attempts.
While a surge in inflation would likely cause Sterling to advance, its strength could be undermined on Thursday if the BoE warns on the possibility of inflation becoming too strong.
(Previously updated 11:27 BST 12/09/2016)
GBP/EUR ended the week around a cent lower than Monday’s opening levels of 1.1915, despite briefly hitting a weekly high of just above 1.2000 on Tuesday. The pair plunged on Wednesday, reaching a weekly low of 1.1779 on Thursday before trending widely in the region of 1.1835 by Friday afternoon.
While UK data is lacking at the start of this week, there are several pieces of significant UK news scheduled for the week ahead, so notable Pound Sterling to Euro exchange rate movement is likely.
There are also some ecostats from the currency bloc, including the ZEW economic sentiment surveys for Germany, with the potential to inspire GBP/EUR volatility.
Pound (GBP) Weakens as Brexit Concerns Weigh
Sterling had a mixed week last week, but ultimately ended the session well below its opening levels as markets once again became concerned about the potential struggles of the British economy following June’s Brexit vote.
While the Pound surged on Monday as August’s PMIs came in well above expectations, continuing a trend of better-than-expected August data, this bullishness failed to last and by Wednesday GBP was trailing downwards.
Disappointing July data and comments from the Bank of England (BoE) reminded investors that even if August experienced an activity uptick, Britain’s economy was likely to have slowed significantly in Q3 compared to Q2.
Sterling attempted to advance again on Friday on mixed UK ecostats. While Britain’s trade deficit didn’t narrow as much as some had forecast, only lightening from -£.5573b to -£4.502b, investors were slightly cheered by the confirmation that the deficit could continue to lighten despite the shock of the Brexit vote.
UK Construction also fared slightly better-than-expected according to Friday’s July print. After coming in at -1.0% in June, and further contraction being expected, the sector instead stagnated at 0.0%. The year-on-year score also improved, from -0.7% to 1.5%.
Euro (EUR) Exchange Rates Sturdy after ECB Policy Decisions
After trending weakly on disappointing August data for most of September so far, the Euro was finally given a more solid foothold on Thursday when the European Central Bank (ECB) held its September policy meeting.
As it was the bank’s first meeting since July, there had been a wealth of speculation about if it was time for the ECB to extend or expand the stimulus package it introduced in early 2016.
While the bank was not widely expected to introduce new easing just yet, there was a market consensus that ECB President Mario Draghi would be more dovish and hint at further easing due to the Eurozone’s sluggish August performance.
However, the bank left policy on hold and hesitated to hint at future monetary policy at all, only briefly mentioning that the Brexit vote had slightly slowed down the bloc’s recovery outlook. The Guardian reported;
‘Draghi used his latest news conference on Thursday to insist that his support package was “effective” while promising there was more ammunition left to deploy if inflation refuses to budge upwards. “If warranted, we will act by using all the instruments available within our mandate,” he said.
Draghi also said the ECB was looking at ways to ensure “a smooth implementation” of its QE scheme, by which it electronically creates money to buy bonds.’
Investors had bought into the Euro ahead of the meeting, with some analysts expecting a Euro profit-taking selloff on a dovish tone. However, the bank’s more hawkish-than-expected tone left the Euro strengthening, and it held its ground until the end of the week.
Pound Euro Exchange Rate Forecast: August Inflation Results and BoE Meeting Next Week
The Pound to Euro exchange rate forecast has a chance to continue the recovery attempts seen in early-September next week, depending on the results of Britain’s key upcoming ecostats.
Vital British data due for publication throughout the week includes Tuesday’s Consumer Price Index (CPI) scores. These will indicate how British inflation has fared throughout August, with many analysts previously speculating that the low value of the Pound could cause a surge in CPI.
Various key Eurozone prints will also be published on Tuesday, including German inflation scores for August, Eurozone unemployment for Q2 and ZEW’s September economic sentiment surveys for Germany and the Eurozone.
Britain’s own unemployment results are due on Wednesday, with figures for the three months leading into July as well as jobless claims figures for August.
However, next week’s main attraction will be on Thursday. As well as the Eurozone’s final August inflation scores, the Bank of England (BoE) will be holding its September policy meeting.
In the bank’s first meeting since policymakers introduced an aggressive set of stimulus measures in August, economists expect the bank to express a ‘wait and see’ approach to Britain’s economy.
If the bank hints that further easing will still be necessary despite August’s activity uptick, the Pound could be heavily undermined. As a result, the BoE meeting is the most significant factor directing next week’s Pound Euro (GBP/EUR) exchange rate forecast.
