- Pound Euro Exchange Rate Back at 1.13 – Recovers sharply from 2017 lows of 1.12
- BoE Governor’s Surprising Tone – Removing UK monetary stimulus may be necessary
- Eurozone Inflation Stats Slip – But beat analyst expectations
- Forecast: Final June PMIs Next Week – UK services stats could influence Pound
Pound Euro Ends Week Flat after Wide Fluctuations
Despite the past week’s surprising central bank news, the Pound Euro exchange rate is likely to end the week relatively closely to its opening levels of around 1.1360.
The Pound has performed strongly since BoE Governor Carney’s comments earlier in the week, but the Euro held its ground due to strong Eurozone ecostats.
As well as better-than-expected inflation data, Friday also saw the publication of Germany’s impressive retail sales stats from May, and less impressive unemployment change report from June.
While it was a pretty good week for the pound, GBP EUR looks to begin Q3 2017 far lower than it was at the start of Q2. Throughout the quarter, GBP EUR has fallen from 1.1772 to around 1.1360.
Next week investors are likely to focus on Markit’s UK PMIs from June, particularly the services index data which comes in on Wednesday.
[Previously updated 12:38 BST 30/06/2017]
The Pound Euro exchange rate has trended largely flatly since its Wednesday recovery and could end the week quite close to its opening levels of 1.1360.
While the pair briefly touched on a new weekly high of 1.1407 on Friday morning, strong Eurozone ecostats have seen the pair slip again.
Italian and Spanish Consumer Price Index (CPI) data from June failed to meet expectations, but key German and Eurozone inflation projections were more impressive.
German inflation was predicted to slow from 1.5% to 1.4% year-on-year in June, but instead improved to 1.6%.
Eurozone inflation was estimated to slow from May’s yearly figure of 1.4% to 1.2%, but is now projected to only slow to 1.3%.
[Published 07:00 BST 29/06/2017]
After tumbling earlier in the week, the Pound Euro exchange rate saw a quick and surprising reversal on Wednesday afternoon, surging as Bank of England (BoE) and European Central Bank (ECB) bosses defied market expectations.
GBP EUR had plunged to a new 2017 low of 1.1261 on Wednesday due to a perception that the ECB had been hawkish. However, surprising twists saw GBP EUR quickly recover to above the level of 1.1350.
Pound (GBP) Demand Surges on BoE Boss Carney’s Latest Comments
After mixed comments from Bank of England (BoE) policymakers over the last week and limp trade for the Pound amid economic uncertainty, investors bought up Sterling following comments made by Bank of England (BoE) Governor Mark Carney on Wednesday.
Carney has maintained a dovish and cautious tone on UK monetary policy since the BoE introduced an aggressive stimulus package last August.
However, this week’s comments from Carney surprised as he stated that it may become necessary in the coming months to withdraw some of that stimulus;
‘Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.’
This was seen as a big shift in tone from last week where he cautiously stated that Britain was not ready for higher rates.
However, similarly to Andy Haldane’s hawkishness last week, Carney indicated his stance relied on the strength of Britain’s ecostats over the coming months;
‘The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months’
Some analysts noted that currency markets may have overlooked Carney’s warnings on things such as wage growth and Brexit.
However, Carney’s comments are generally being seen as a notable shift in tone regardless and the Pound outlook is higher as a result.
Euro (EUR) Sold as Investors May Have Misread ECB’s Draghi
The Euro, on the other hand, quickly reversed some of the gains it made earlier in the week as sources from the European Central Bank (ECB) reportedly told Reuters that ECB President Mario Draghi’s words had been misinterpreted.
Draghi stated on Tuesday that the ECB would need to be ‘prudent’ when it came to adjusting or withdrawing its aggressive monetary policies. However markets took this to mean that the bank would be tightening monetary policy sooner than expected.
According to an ECB source talking to Reuters, ‘The market failed to take note of the caveats in Draghi’s speech’.
Instead, Draghi intended to hint at the earliest point the central bank would begin to discuss rolling back monetary stimulus, in order to prepare the market for the possibility without making a commitment to any shift in policy.
On the other hand, Draghi and the ECB’s sources remained optimistic on inflation and asserted that the recent drops in Eurozone inflation were due to weaker global prices in energy like oil.
The ECB expects Eurozone inflation to come in at around 1.2% in June, so Italy’s preliminary June inflation stats published on Wednesday morning were largely brushed over.
Pound Euro Forecast: Eurozone Inflation Data in Focus
Despite Euro investors seemingly misreading ECB President Draghi’s intentions, the Euro will still see an increase in demand if Eurozone inflation data beats expectations in the late-week.
Thursday will see the publication of Spain and Germany’s preliminary June inflation reports, followed by the Eurozone’s overall June inflation projection on Friday.
If they beat expectations, investors may become more hopeful that the ECB could indeed begin to tighten monetary policy later in the year. This would lead to GBP EUR slipping towards the end of the week as Euro demand rises again.
However, if Eurozone inflation stats come in even lower than expected in all major prints, the Euro is likely to remain weak and the Pound Euro exchange rate could end the week higher.
Other notable Eurozone data could also influence Euro movement. The Eurozone business confidence survey from June will be published on Thursday, followed by German retail sales and unemployment data on Friday.
Friday will also see the publication of Britain’s final Q1 Gross Domestic Product (GDP) report, but the Euro is most likely to drive Pound Euro exchange rate movement towards the end of the week.