UPDATE
The Euro to Pound Sterling Exchange Rate (EUR/GBP) exchange rate was trending within a limited range on Monday morning.
With a complete absence of influential British and European economic data to provoke volatility, the Euro to Pound Sterling (EUR/GBP) exchange rate has seen subdued trade in the early stages of Monday’s European session. There is potential for an increase in volatility for the pairing with several speeches from Federal Reserve officials later during the North American session. Should the speeches provide fodder for rate hawks, the Euro will soften and the Pound gain.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7411.
EUR/GBP Exchange Rate Rallied Last Week on Bearish US Dollar
Towards the close of last week’s trade, the Euro to Pound Sterling (EUR/GBP) exchange rate rallied by around 1.0%.
After both the Bank of England (BoE) and the Federal Reserve meeting minutes showed a dovish outlook, the Pound Sterling declined significantly. With the Fed citing the global economic slowdown as the main obstacle for raising rates, and with speculation that the BoE will not raise rates ahead of the Fed, the British central bank could be holding off tightening policy for some time to come. The BoE highlighted the absence of price pressures as the main reason for holding off rate increases.
The predicted delays to a Fed rate hike, and the resultant bearish US Dollar, was a positive for the single currency which advanced versus its major peers at the tail-end of last week. This is primarily due to EUR/USD negative correlation thanks to the fact that it is the most commonly traded currency pairing in the world. A weak US Dollar equates to a strong Euro, and vice versa. In addition the prospect of a longer period of loose policy from the US is a better environment for the European Central Bank (ECB) to attempt to stimulate price pressures in the Euro-area.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7424 towards the end of Friday’s European session.
Euro Forecast to Fluctuate on Market Sentiment, Eurozone Inflation Data in Focus
There will be several influential domestic data publications over the coming week with the potential to provoke Euro volatility. Perhaps the most significant of which will be Eurozone Consumer Prices. After having dropped into negative territory, the lack of price pressure provoked many to speculate that the ECB will look to expand quantitative easing. Should Euro-area inflation remain negative the single currency could decline significantly.
The German ZEW Economic Sentiment Report for October will also be of importance to those invested in the common currency. This is primarily because it will be the first sentiment report to follow the Volkswagen scandal, so it will be interesting to see what effect that has had whilst still in its infancy.
Pound Sterling Forecast to Fluctuate on Data, British Consumer Prices in Focus
Whilst there will be a number of influential British economic data reports over the coming week, the primary focus for Sterling investors will be the Consumer Price Index due for publication on Tuesday. September’s Consumer Prices are predicted to rise to 0.2% on the year, with Core Consumer Prices predicted to reach 1.1%. This data is particularly significant given that BoE policymakers highlighted the lack of price pressures as the fundamental stumbling block hindering a benchmark rate increase.
US data and any speeches from Fed officials will also be significant to Pound pundits. With most economists confident that the BoE will avoid hiking the cash rate before the Fed, if traders are forced to delay Fed bets they will also be forced to delay BoE bets.
Last Friday, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending within the range of 0.7334 to 0.7430.