- Pound Euro Exchange Rate Reaches 1.14 – BoE news gives Pound a big boost
- Surprise Split Among Bank of England (BoE) Policymakers – Pound surges
- Eurozone Inflation Meets Expectations – Pound Euro slips from highs
- Forecast: UK Political Developments in Focus – Brexit negotiations to begin next week
Pound Euro Ends Week Higher on BoE News
Despite slipping slightly from the week’s high of 1.1465, the Pound Euro exchange rate looked to end the week’s European session above its opening levels, thanks largely to Thursday’s Bank of England (BoE) inspired gains. At the time of writing this update, GBP EUR trended in the region of 1.1420.
Economic data will take a backseat next week. UK and EU officials have indicated that formal Brexit negotiations are still on track to begin on Monday the 19th, which could have a direct impact on the Pound.
If Britain’s negotiation stance softens at all, the Pound could advance. On the other hand, if early Brexit negotiations cause greater uncertainty or appear to go poorly, GBP EUR will plunge.
Developments about Britain’s new minority government could also keep the Pound under pressure next week.
[Previously updated 12:43 BST 16/06/2017]
The Pound Euro exchange rate slipped slightly from this week’s best levels on Friday morning, but still looks likely to sustain gains this week following Thursday’s surprising Bank of England (BoE) news.
A lack of strong Euro demand this week has helped the Pound to recover despite ongoing political and economic certainty in Britain.
Friday’s Eurozone data included May’s final Consumer Price Index (CPI) result for the bloc, which met expectations of 1.4% year-on-year and -0.1% month-on-month. As the data met forecasts, the shared currency was limp.
Euro trade was bolstered slightly by news that Greece had reached an agreement to unlock €8.5b in debt relief loans from the Eurozone, but this had a minimal effect as concerns remained that they would not be sustainable in the long-term.
[Published 06:00 BST 16/06/2017]
Despite this week’s concerning UK data, the Pound Euro exchange rate looks set to sustain gains by the end of the week. Thursday’s Bank of England (BoE) news caused a surge in Pound demand as bank policymakers surprisingly disagreed on whether or not to tighten UK monetary policy.
GBP EUR began the week trading at the level of 1.1382. After hitting a monthly low of 1.1282 at the beginning of the week, the pair recovered and on Thursday the pair jumped to a high of 1.1461 – its best level since last week.
Pound (GBP) Surges on Surprising Bank of England (BoE) Split
After performing poorly for most of the week on persistent political and economic concerns, the Pound saw a surge in demand on Thursday after the Bank of England (BoE) announced its June policy decision.
The BoE voted 5-3 to leave UK monetary policy frozen at its loosest levels on record – which is significant.
Three members of the BoE Monetary Policy Committee (MPC); Kristin Forbes, Ian McCafferty and Michael Saunders, voted to hike UK interest rates.
This was the first time since 2011 that three policymakers had voted to raise interest rates. As a result, investors became hopeful that the bank may actually hike UK interest rates in the foreseeable future.
According to the bank’s meeting minutes, published alongside the policy decision;
‘Overall, the degree of spare capacity in the economy appeared limited but, at the same time, the inflation overshoot relative to the target could be more pronounced than previously thought. This lessened the trade-off that the MPC was required to balance and, all else equal, reduced the MPC’s tolerance of above-target inflation. The Committee discussed the appropriate response of monetary policy.’
However, while more policymakers appear to be becoming impatient with how high inflation is rising, many analysts still predict it will be some time before UK interest rates are actually hiked.
For one thing, hawk Kristin Forbes will be stepping down from her position on the MPC at the end of June, making this her last policy decision. Her successor may not be as hawkish in comparison.
Analysts like Samuel Tombs of Pantheon Economics have also pointed out that with UK wage growth below 2% and inflation almost at 3%, it would be too risky to tighten monetary policy.
UK data this week has worsened UK growth concerns, with wage growth slowing and retail sales coming in well below expectations in May, indicating that the British public are not comfortable spending as consumer prices soar.
Euro (EUR) Fails to Find Fresh Support
While the Euro has performed strongly in recent weeks, a lack of influential and strong data this week has left the shared currency limp. Some investors have opted to sell it from its highs in profit-taking, helping the Pound Euro exchange rate to advance.
Eurozone data this week has either been too low influence or too disappointing. Wednesday’s Eurozone industrial production and employment change figures beat expectations, but investors brushed over them.
Thursday data was disappointing. France’s final May Consumer Price Index (CPI) results were projected to remain at 0.1% month-on-month, but they unexpectedly slowed to a stagnant 0%. This increased concerns that Friday’s Eurozone inflation figure may also disappoint.
The Eurozone’s April trade balance report was published on Thursday too. The surplus was projected to slip from €30.9b to around €27.2b but instead dropped to just €17.9b. The previous figure was also revised lower, to €30.
Pound Euro Forecast: Pair Unlikely to Drop on Friday
Friday’s data is unlikely to weaken the Pound or strengthen the Euro. The day’s only data worthy of note will be the Eurozone’s final May inflation results and Q1 wage growth data.
As France’s final May inflation stats failed to meet expectations it’s unlikely Eurozone inflation will be better than expected overall.
Worse-than-expected Eurozone inflation would weaken the Euro and make it easier for the Pound Euro exchange rate to hold its Thursday gains.
However, amid the past week’s UK political uncertainties and developments there’s always the chance the Pound could be weakened again. If political developments indicate that Brexit negotiations will be negatively impacted, for example, the Pound is likely to weaken.
Next week could be a big one for Pound trade as the new government is expected to deliver the Queen’s speech. The Queen’s speech marks the formal opening of the new parliament. Brexit negotiations are also expected to begin in the next week but uncertainty remains high.
As for the Euro, the shared currency could be influenced by the weekend’s French legislative elections when markets open on Monday.
