Despite a lack of demand for the Euro this week, the Pound Euro exchange rate tumbled on Tuesday in reaction to the latest statements from Bank of England (BoE) Governor Mark Carney. GBP EUR had shed most of last week’s gains at the time of writing and trended below the key level of 1.14 once again.
Pound (GBP) Plunges as Carney Remains Dovish
Last week’s Bank of England (BoE) policy decision improved the Pound outlook, as three policymakers voted to hike UK interest rates, making a tight split decision of 5-3 to leave rates frozen.
This led to a surge in market speculation that the BoE was edging closer to being pressured into tightening UK monetary policy.
Rising UK inflation in recent months has been the main reason for some policymakers voting to hike rates. The inflation rate hit 2.9% according to last week’s Consumer Price Index (CPI) report, well above the BoE target of 2%.
However, on Tuesday morning this week BoE Governor Mark Carney took part in a series of speeches at a Mansion House breakfast in London.
Carney appeared to distance himself and the BoE in general from the three hawkish policymakers from last week. He declared that Britain wasn’t ready for higher interest rates which was highly disappointing to investors hoping his stance was slowly shifting.
Carney stated;
‘Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank Rate increase. But all expect that any changes would be limited in scope and gradual in pace.
From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment.’
As a result of Carney’s speech, the Pound shed much of last week’s gains.
The long-term Pound outlook will be influenced in the coming weeks by further developments in Britain’s political situation and Brexit negotiations. Some analysts argue that a minority Conservative government or its leader Theresa May could struggle to last. This uncertainty has left pressure on Pound trade.
Euro (EUR) Outlook Could Shift on PMI News
Amid a lack of fresh supportive data, the Euro has been unable to advance much over the past week.
Eurozone data has been relatively low influence. While the Eurozone’s political stability is improving and the economy continues to slowly recover, recent news hasn’t notably changed the Euro’s outlook.
The weekend’s French legislative elections went largely as investors had expected, with French President Emmanuel Macron’s ‘en Marche!’ party winning a clear majority of 350 seats in France’s national assembly.
Uncertainty remains however, as analysts expect Macron will face notable public opposition to some of his labour market proposals.
Poor voter turnout in the legislative election has also concerned markets amid signs of public dissatisfaction with France’s political system.
Looking ahead, the Euro outlook could finally see some shifts towards the end of the week as Markit will publish its preliminary June PMIs for the Eurozone.
As usual, investors will pay particular attention to Germany’s manufacturing PMI and the Eurozone’s overall PMIs. Analysts expect private sector activity to have slowed in June after strong performance in April and May.
If PMIs shock investors by coming either well above or well below expectations, the Euro outlook could change.
GBP EUR Interbank Rate
At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1355. The Euro to Pound exchange rate traded at around 0.8805.
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