EUR/GBP Conversion Rate Predicted to Tick Higher after Eurozone Inflation Bettered Estimates
The Euro to Pound Sterling (EUR/GBP) exchange rate softened by around -0.2% on Wednesday afternoon.
With the forthcoming Federal Reserve interest rate decision dominating trader focus, the currency market has seen comparatively subdued trade today. A fractional Euro appreciation can be linked to positive Eurozone inflation data, although ecostats have had minimal impact with all eyes looking ahead to tonight’s events. Whilst most traders are convinced that Federal Open Market Committee (FOMC) members will vote to increase the overnight cash rate by at least 25 basis points, there is an air of uncertainty with regards to how policy will be approached in 2016. If Fed Chairwoman Janet Yellen elects to use dovish rhetoric in the corresponding press conference there is a high chance that the Euro will surge.
Today’s European economic data produced a mixed-bag of results erring towards positivity. Of particular significance was Eurozone consumer prices which bettered estimates on both a monthly and an annual basis in October. Howard Archer, chief UK and European economist at IHS Global Insight, said Wednesday’s inflation data ‘will obviously be welcomed by the European Central Bank, although it does not fundamentally change the overall picture of inflation being substantially under-target after a prolonged undershoot. While we doubt that the Eurozone will return to deflation, it cannot be completely ruled out given the current weakness in oil prices, which have hit a seven-year low in mid-December.’
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7284.
GBP/EUR Conversion Rate Predicted to Hold Losses ahead of FOMC Rate Decision
Domestic data had minimal impact on the Pound as traders prepare for the hotly-anticipated Federal Reserve interest rate decision. Whilst Bank of England (BoE) policymakers have stated that they have no mechanical connection with other central banks, tighter policy in the US is more likely to hurry BoE policymakers into following suit. However, recent comments from officials at the British central bank regarding the slow pace of wage growth have dampened hopes that the benchmark interest rate will rise in 2016.
This notion was further solidified after wage growth data produced disappointing results today. October’s Average Weekly Earnings came in at 2.4% which was marginally lower than the median market forecast 2.5%. In addition, Weekly Earnings ex Bonus failed to meet with expected growth at 2.3%, with the actual result dropping to 2.0%. ‘The economy is robust, jobs growth is strong, but there is no wage inflation,’ Alan Clarke, an economist at Scotiabank, told clients. ‘Of the conversations that I have had recently with people at the coal face, one thing stands out. With CPI inflation so close to zero, employers do not feel compelled to raise wages.’
The Euro to Pound Sterling (EUR/GBP) exchange rate dropped to a low of 0.7259 today.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: FOMC Rate Decision to Provoke Volatility
Unless the Federal Reserve does exactly what traders have anticipated, a very rare occurrence, the outcome of the FOMC decision is likely to provoke significant market volatility. Should the Fed act more dovishly than anticipated the single currency is likely to strengthen considerably. On the flip side, a hawkish outcome will send the US Dollar higher. The Pound will fluctuate in response to both Euro and US Dollar movement.
The Euro to Pound Sterling (EUR/GBP) exchange rate climbed to a high of 0.7292 during Wednesday’s European session.