Euro to Pound Exchange Rate Climbs from Lows on UK Services Disappointment
Updated 10:12 BST 05/04/2018:
Thursday’s Eurozone and UK data was generally disappointing, but ultimately the UK data was moreso and as a result the Euro to Pound (EUR/GBP) exchange rate recovered slightly from its worst levels.
At the time of writing, EUR/GBP was trending closer to the level of 8.752 after rebounding slightly from near its weekly lows.
UK services data was forecast to have slipped slightly from 54.5 to 54, but instead slumped to just 51.7.
This was one of the lowest levels in the print since after the Brexit vote in 2016, and was largely caused by surprisingly heavy snowfall throughout the UK.
However, as the Eurozone’s February retail sales results also disappointed, the Euro (EUR) was unable to capitalise on Sterling (GBP) weakness.
Eurozone retail sales were forecast to improve to 0.6% month-on-month but only rose to 0.1%. The yearly figure fell to 1.8% rather than the expected 2.1%.
[Published 09:24 BST 05/04/2018]
Euro to Pound Exchange Rate Tumbles to Near Two-Week Lows
Despite some disappointing UK data on Wednesday, the Euro to Pound (EUR/GBP) exchange rate outlook didn’t change much and the pair shed its recovery attempt towards the end of the day.
On Thursday morning, EUR/GBP trended near a two-week low of 0.8714. The pair has fallen from the week’s opening levels 0.8794 and has already shed all of last week’s gains.
With key Eurozone and UK data due on Thursday morning, Euro to Pound (EUR/GBP) exchange rate investors are awaiting these developments before making any moves on the pair.
As no major data is set for publication on Friday, Thursday’s Eurozone retail sales and UK services stats are likely to drive EUR/GBP movement for the remainder of the week.
However, as EUR/GBP has already seen notable losses, the pair is unlikely to recover much before markets close on Friday. In fact, analysts predict the Pound (GBP) has more gains to come.
Euro (EUR) Strength Limited as Eurozone Inflation Meets Forecasts
Investors have had little new reason to buy the Euro (EUR) this week, as the Eurozone’s latest ecostats have either been mixed or unsurprising.
Wednesday saw the publication of key Eurozone data, including March’s Consumer Price Index (CPI) projections for the bloc, as well as the Eurozone’s February unemployment rate results.
Eurozone inflation was forecast to have risen from 1.1% to 1.4% year-on-year in March, and the inflation rate did indeed improve to 1.4%.
To some investors this was perceived as supporting the notion that the European Central Bank (ECB) was likely to continue unwinding its quantitative easing (QE) scheme later this year.
Still, as core inflation remained at 1% year-on-year it indicated that Eurozone inflation was still ultimately subdued and would not be able to support tighter monetary policy from the bank any time soon. With ECB interest rate hike bets low the Euro’s gains were limited.
The Eurozone’s unemployment rate improved from 8.6% to 8.5% as forecast.
Thursday morning saw the publication of Eurozone services and composite PMI data from March – but both came in even lower than projected. As a result the Pound more easily held most of this week’s gains against the Euro.
Pound (GBP) Exchange Rates Could Rise Despite Mixed PMIs
Investors largely overlooked Wednesday’s UK construction PMI in the end, despite the data falling short of expectations and even surprising with a contraction of 47.0.
The construction PMI was forecast to slip from 51.4 to 50.9, but instead fell below the 50.0 point separating contraction from growth. It was the first time the print had fallen below 50.0 in six months.
As construction is one of Britain’s less influential sectors however, the surprising contraction ultimately had little effect on the Pound outlook, particularly as UK manufacturing beat expectations just earlier in the week.
On top of this, analysts are forecasting that the Pound outlook is still bullish, as Brexit concerns are now being seen as overplayed.
With a UK-EU post-Brexit transition period now agreed and the risk of a ‘cliff-edge’ hard Brexit in March 2019 now largely removed, analysts at MUFG and Argentex expect the Pound will continue to recover.
Euro to Pound (EUR/GBP) Forecast: Further Eurozone Inflation Reports Next Week
While Thursday’s UK services PMI and Eurozone retail stats are likely to continue driving the Euro to Pound (EUR/GBP) exchange rate for the remainder of this week, next week’s trade is likely to focus more on Eurozone stats.
Next week’s UK economic calendar will be a little quieter, with the most notable data due for publication being February’s UK trade balance and production results, due Wednesday.
The Euro may drive EUR/GBP movement for much of the week, particularly if any of the key Eurozone inflation figures due for publication surprise investors.
Final March inflation rate figures from France and Ireland will be published on Thursday, followed by German and Spanish inflation figures on Friday.
The most vital inflation figures will be those from Germany. If they beat expectations, the Euro outlook will rise. On the other hand, slower inflation would make it even easier for the Pound’s rally to continue.
Analysts already expect the Pound to continue its tradition of performing strongly in April – and the currency is likely to be further boosted by hopes for a softer Brexit, as well as a Bank of England (BoE) interest rate hike in May.
