- Pound Euro Exchange Rate Reaches 1.18 – GBP EUR recovers on Thursday
- Euro Demand Remains Strong – Investors optimistic on Macron’s performance
- ECB Tone Unchanged – Investors hoping for hawkishness are disappointed
- GBP Forecast: UK Growth Data Due Friday – Could boost Sterling if it impresses
Pound Euro Exchange Rate Recovers on Dovish Draghi
The Pound Euro exchange rate recovered over half of its weekly losses on Thursday and trended in the region of 1.18 once more after investors were disappointed with the dovish tone of European Central Bank (ECB) officials.
While analysts warned the bank was unlikely to take on a different tone in the middle of the French Presidential elections, investors had hoped Draghi would begin to hint that monetary policy could be tightened again.
Draghi was overall optimistic, saying Eurozone growth was becoming stronger. However, he noted core inflation was still subdued.
The day’s Eurozone data was impressive but failed to help the Euro hold its weekly gains. Monthly German inflation came in at 0% rather than the expected -0.1%, and yearly inflation beat projections of 1.9% by rising from 1.6% to 2%.
[Previously updated 14:11 BST 27/04/2017]
The European Central Bank (ECB) took an unsurprising and familiar tone to monetary policy on Thursday, leaving policy frozen at its lightest levels.
In a following press conference, ECB President Mario Draghi was careful to avoid talking about politics as well as any hints of long-term changes to monetary policy.
Despite Draghi’s comments that Eurozone growth and expansion were solid, he mentioned that there were still downside risks.
Investors hoping for more hawkishness following this week’s French election news were disappointed, and the Euro weakened on Thursday allowing GBP EUR to trend in the region of 1.18.
[Previously updated 16:50 BST 16/04/2017]
Pound Euro Exchange Rate Bought from Lows in Quiet Wednesday Trade
Despite a lack of fresh supportive data on Wednesday, the Pound Euro exchange rate recovered from its weekly lows and towards the end of the day tested the level of 1.18 again.
Investors sold the Euro from its highs in profit-taking. Some have also remained cautious that a French election win for anti-EU Marine Le Pen is still possible, limiting the Euro’s rally potential.
Thursday could give the Euro another big boost if the European Central Bank (ECB) meeting or following press conference impresses investors.
Any hawkish comments from ECB President Mario Draghi could strengthen the Euro again and GBP EUR could slip back towards its weekly lows.
[Previously updated 13:00 BST 26/04/2017]
The Pound Euro exchange rate edged higher during Wednesday’s European session after falling to a new 2017 low early on Wednesday morning. GBP EUR continues to trend in the region of 1.17, over a cent below the week’s opening levels.
Wednesday’s session was relatively quiet amid a lack of fresh influential UK or Eurozone data. Business confidence in The Netherlands improved in April, but this was too low-influence to bolster the Euro.
Some investors opted to sell the shared currency from its highs on Wednesday in profit-taking. Concerns also remain that anti-EU French Presidential candidate Marine Le Pen could still win the Presidency if she sees an increase in support before the 7th of May.
[Published 06:00 BST 26/04/2017]
After a sharp drop on Monday, Tuesday’s session saw little change in the Pound Euro exchange rate. Britain’s latest data was mixed and low influence, while Euro traders kept the shared currency strong on French election hopes.
GBP EUR began this week trading at the level of 1.19, but plunged to 1.17 the moment Asian markets opened on Monday morning. The pair has tested the level of 1.18 at various points since then but generally remains at 1.17.
Pound (GBP) Movement Little Changed after Mixed Borrowing Data
The Pound has been relatively flat since markets opened this week. GBP investors remain optimistic towards the upcoming UK general election, but recent UK data has weighed on the Pound’s recovery chances against a strong Euro.
Monday’s CBI factory trends data indicated that UK exports were strong due to the low value of the Pound, but the Q2 business optimism print indicated that businesses were far less confident looking forward.
Tuesday’s public sector net borrowing stats for March were also mixed. While the figure rounded off a financial year with the lowest government borrowing since the financial crisis, March’s borrowing was still deeper than hoped, at £-4.36b rather than the projected £-1.5b.
Analyst reactions to the public borrowing report have been pessimistic. Scott Bowman from Capital Economics argued that the 2016/17 fall in borrowing was temporary;
‘Much of this annual fall was due to one-off timing factors including forestalling ahead of the rise in dividend tax in April 2016 and delays in the requests for contributions to the EU budget. Accordingly, we think that borrowing will probably rise by a few billion pounds in 2017-18 as these factors unwind’
John Hawksworth, PwC chief economist, also expects borrowing to worsen again in the next financial year. He points out that 2016/17 borrowing was in line with OBR forecasts – and OBR forecasts rising borrowing next year due to rising inflation and healthcare costs putting pressure on public finances.
Euro (EUR) Holds Firm on Macron Optimism
The market poured into the Euro on Monday morning, reacting to news that pro-EU centrist Emmanuel Macron had won the first round of the French Presidential election on Sunday.
Opinion polls running up to the vote had been reassuringly accurate, with Macron gaining almost 24% of the vote and anti-EU far-right candidate Marine Le Pen gaining around 21.5%.
This significantly increased market optimism that round two polls would also be accurate. In most round two polls, Macron has a commanding lead of over 60% over Le Pen.
Market fears of a ‘Frexit’ have lightened notably due to Macron’s strong performance in the first round, as well as optimistic second round polls. Le Pen and her proposals to remove France from the Eurozone have been seen as among the biggest threats to the single currency’s future.
Some analysts are still taking a more cautious stance and advising that markets and observers don’t take a Macron win for granted.
For example, supporters of the defeated far-left, anti-EU candidate Jean-Luc Mélenchon may lean more towards Le Pen for her anti-EU stances, or simply abstain from voting. Mélenchon was highly critical of both Macron and Le Pen and has shown no intention thus far of formally backing either.
It’s also possible that Le Pen could garner more support in the coming weeks through fierce campaigning, making her defeat far from certainty.
Pound Euro Forecast: Markets Anticipate European Central Bank Meeting
Wednesday is unlikely to see any shifts in Pound Euro exchange rate movement due to a lack of influential data due until Thursday.
It’s also unlikely that bets of a Macron win will suddenly change for the worse on Wednesday, so Euro trade is expected to remain relatively strong.
Thursday’s session will be particularly influential for Euro trade however. The European Central Bank (ECB) will hold its April policy decision and some traders hope the bank will hint at how French election hopes have improved the Eurozone’s economic outlook.
While the bank is not expected to make any changes to monetary policy and most expect it will avoid talking politics, any signs of a more hawkish attitude from policymakers would be a definite plus for the Euro.
Thursday’s European session will also see the publication of GfK’s German consumer confidence survey for May, as well as Eurozone business confidence data from April and lastly, preliminary German inflation data from April.
Even more influential data will be published on Friday. British, French and Spanish Gross Domestic Product (GDP) projections for Q1 2017, as well as the April Eurozone inflation projections. If late-week Eurozone news disappoints, the Pound Euro exchange rate could recover from its lows.