The Pound to Euro exchange rate looks set to end the week trending in the region of 1.1840, down from the week’s best rates but still far removed from the worst GBP EUR levels recorded in the wake of the UK’s decision to Brexit. If the Bank of England (BoE) refrains from cutting interest rates again at next week’s gathering and doesn’t adopt too cautious a tone, the Pound could potentially revert back to achieving recent highs of 1.20.
The Pound US Dollar (GBP USD) exchange rate, meanwhile, fell back to 1.32 – down 2 cents from the week’s high of 1.34. The US Dollar was left trending in a broadly stronger position after a Fed official warned of the negative impact of low interest rates on the US economy.
- Bank of England still expected to lower interest rates before end of 2016 – Pressure mounted on Pound over dovish outlook
- Disappointing German Industrial Production undermined Euro confidence – Fresh signs of slowing within Eurozone’s powerhouse economy weighed on sentiment
- Odds of Fed rate hike continued to weaken – US Dollar downtrend extended as domestic data failed to offer encouragement
- ECB commentary has notable impact on GBP EUR exchange rate – Single currency likely to remain bullish on market easing scepticism
The European Central Bank’s (ECB) interest rate decision left the Pound to Euro exchange rate down 0.7%, with GBP/EUR hitting a low of 1.1766 during the European session.
The Pound’s performance against the US Dollar was less dramatic, with GBP USD holding in the region of 1.3330. Whether or not the Pound is able to return to trending around the week’s best levels largely depends on how Friday’s UK trade data prints. A reduction in the deficit would be Sterling positive. Other UK data to be aware of includes the nation’s Construction Output numbers for July, a declines have been forecast on both the month and year.
GBP EUR, GBP USD Exchange Rate Update: Euro Gains after ECB Decision
As the ECB opted to leave stimulus unchanged at today’s gathering, the Euro advanced on its rivals with the Pound to Euro exchange rate falling by 0.7% to trade in the region of 1.17.
While ECB President Mario Draghi indicated that the Brexit is likely to hinder the Eurozone’s economic recovery, his commentary wasn’t viewed as dovish enough to prevent the Euro rallying.
(Previously updated: 08:00 GMT 08/09/2016)
Following dovish comments from Bank of England (BoE) policymakers the Pound to Euro exchange rate has been on a weaker footing, even as the Pound continues to trend higher against the US Dollar. This week GBP/EUR has fallen from a high of 1.20 to trend in the region of 1.18 while GBP/USD has plateaued at 1.33 after previously pushing above 1.34. With the European Central Bank (ECB) interest rate decision looming, further Pound to Euro exchange rate movement can be expected.
With the Brexit issue back in focus eyes will be on the European Central Bank, which could be forced to return to a dovish bias in the wake of uncertainty stemming from the UK’s referendum.
Pound (GBP) Exchange Rates Weighed Down by Persistent Brexit Uncertainty
Despite its earlier bullishness the Pound (GBP) has begun to fall out of favour with investors again this week. July’s UK production data proved to be slightly more mixed than hoped, with industrial output rising more sharply than expected even as manufacturing production fell short of forecast on the year. This dampened some of the optimism surrounding Sterling, particularly as fresh commentary from the Bank of England (BoE) maintained its dovish tone on monetary policy. As the BoE still looks to be ready to cut interest rates again before the end of the year the appeal of the Pound is expected to remain biased to the downside.
Confidence in GBP exchange rates faltered further on Thursday morning, despite the RICS House Price Balance smashing forecasts. While the housing market continued to grow strongly in August markets have been inclined towards greater caution as the Brexit question continues to loom over the domestic outlook. With uncertainty set to persist for the foreseeable future the Pound has struggled to hold ground against its more bullish rivals.
Euro (EUR) Trended Higher Ahead of ECB Policy Decision Despite Dovish Outlook
A surprise contraction in German Industrial Production prompted the Euro (EUR) to slump sharply on Wednesday. Even though investors had been braced for a slowing in output the drop from 0.9% to -1.2% on the year in July proved substantially discouraging. This weaker showing only stoked worries over the robustness of the Eurozone’s powerhouse economy, which has become increasingly reliant on domestic consumption to drive growth. As a result the outlook for the wider currency union appeared less optimistic, encouraging a fresh round of selling for the single currency.
Even so, ahead of the European Central Bank’s (ECB) September policy meeting the GBP EUR exchange rate returned to a downtrend. Expectations are not overly high for the meeting and subsequent commentary from ECB President Mario Draghi. As researchers at Lloyds Bank noted:
‘New economic projections are likely to show a downward revision to Euro area growth next year, with inflation forecast to remain below target in the next two years. Nevertheless, we expect policy rates and the pace of asset purchases to remain unchanged. However, President Draghi is likely to maintain a dovish rhetoric and indicate that the ECB’s asset purchases will need to continue beyond the current ‘soft’ end date of March 2017.’
Nevertheless, with market scepticism over the abilities of central banks persisting the Euro may continue to trend higher even in the event of any suggestion of further policy easing.
GBP USD Exchange Rate Forecast to Remain Stronger on Diminished Fed Hike Odds
While members of the Federal Open Market Committee (FOMC) have maintained a relatively hawkish tone with regards to monetary policy this has not been enough to boost the US Dollar (USD). Optimistic comments from policymakers on the tightness of the labour market have failed to reverse the damage done by August’s disappointing Non-Farm Payrolls report, with Goldman Sachs slashing its odds on a September rate hike. Risk appetite has also remained strong in the face of improved Chinese data, weighing heavily on the safe-haven ‘Greenback’.
The lower odds of imminent Fed action could keep the GBP USD exchange rate on an uptrend ahead of the weekend, particularly as major US data will be limited. Jobless claims data is unlikely to improve the outlook on the domestic labour market, with the number of those claiming for unemployment expected to have risen on the week. Even if the data surprises to the upside, though, its lower level of impact is likely to see the US Dollar hold onto its bearish form.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trending lower at 1.1852, while the Pound to US Dollar (GBP USD) pairing was making gains in the region of 1.3361.