Bank of England Interest Rate Comments Boost the Pound (GBP) Exchange Rate
On Wednesday the EUR/GBP exchange rate initially softened in response to the UK’s employment stats for the three months to August.
While the pace of job growth slowed and average weekly earnings were shown to be up by just 0.7% on the year, the UK’s unemployment rate dropped to 6.0% – its lowest level since 2008 and the beginning of the global economic crisis.
In the immediate aftermath of the report’s publication the Pound rallied across the board and the Euro slid against its British rival. But Tuesday’s concerning UK inflation figures were still playing on investors’ minds and Sterling soon pared its advance. The Euro was also able to gain on the Pound in response to increased demand for German government debt and a drop on the yield of German 10-year bills to just 0.72%.
The EUR/GBP exchange rate continued to trend in a stronger position until the Bank of England’s Martin Weale spoke on the subject of interest rates.
Global growth concerns might be increasing, but Weale remains of the opinion that interest rates need to be increased now in order to offset long-term inflationary pressures.
His stance pushed the Pound higher against the Euro, Australian Dollar, New Zealand Dollar and Canadian Dollar.
Eurozone Inflation Weak, Recession Looms
During Thursday’s European session the Euro consolidated declines against the Pound as the Eurozone’s Consumer Price Index confirmed that inflation eased to just 0.3% on the year in September.
The environment of stagnant growth and low inflationary pressures could push the Eurozone into a triple dip recession.
According to analysts; ‘There can be little doubt that underlying inflation in the Eurozone is exceptionally low in both goods and services. We expect inflation to pick up only modestly to 0.5% to 0.6% by the end of the year.’
There was a slight bright spot in this morning’s release – Core Consumer Price Inflation came in at 0.8% rather than the 0.7% initially estimated.
However, with Germany slashing its growth projections for both this year and next, and officials clashing over the next policy steps the European Central Bank should take, there is likely to be downward pressure on the Euro for some time.
In the opinion of economist Ben Brettell; ‘The most severe problems in the Eurozone have so far been limited to the periphery, with the core remaining in relative good health. However, in recent months we have seen a shift. Some peripheral economies are now registering decent growth, while the core looks in trouble.’
Meanwhile, although the EUR/USD exchange rate was able to stage a brief rally following the publication of below-forecast US retail sales figures, a fairly optimistic Federal Reserve Beige Book and the prospect of today’s US jobs reports printing well soon saw the ‘Greenback’ rebound.
EUR to GBP, USD Exchange Rate Forecast
Economic reports from the UK are limited today but some further EUR/GBP exchange rate movement could occur following a speech to be given by BoE official Jon Cunliffe.
The EUR/USD exchange rate may experience volatility during the North American session as US initial jobless/continuing claims figures are published. Initial jobless claims are believed to have risen modestly from 287,000 to 290,000 in the week ending October 11th.
The US Dollar may also be boosted if the nation’s Industrial/Manufacturing Production reports show the improvement forecast.
Manufacturing production is believed to have increased by 0.3% in September following Augusts -0.4% decline.
A 0.4% gain in Industrial Production is expected to have wiped out the -0.1% drop in August.
Before the weekend further Euro (EUR) exchange rate movement may be occasioned by the Eurozone’s Construction Output stats and speeches to be given by ECB officials in Frankfurt and Vienna.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7990
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2514
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7990,
Euro,,US Dollar,1.2789,
Euro,,Canadian Dollar,1.4412,
Euro,,Australian Dollar,1.4616,
Euro,,New Zealand Dollar,1.6098,
US Dollar,,Euro ,0.7819,
Pound Sterling,,Euro,1.2514,
Canadian Dollar,,Euro,0.6925,
Australian Dollar,,Euro,0.6835,
New Zealand Dollar,,Euro,0.6210,
[/table]
