Pound to Euro Exchange Rate Outlook Could Rise if BoE Shows Confidence that UK Economy is Resilient
The Pound to Euro (GBP/EUR) exchange rate trended near its weekly lows on Thursday morning, as investors anticipated the Bank of England’s (BoE) June policy decision. The BoE decision is likely to influence GBP/EUR movement for the remainder of the week.
Due to Euro (EUR) weakness, GBP/EUR easily jumped from 1.1385 to 1.1440 last week. However, this week so far GBP/EUR has lost most of those gains, and on Thursday trended near the week’s low of 1.1363.
Despite speculation that the European Central Bank (ECB) is more anxious about the possibility of a US-sparked trade war than it lets on, the Pound (GBP) remained the weaker of the two currencies ahead of Thursday’s BoE decision.
Markets expect the BoE will leave monetary policy frozen, but what matters is the tone the bank takes on Britain’s economy looking forward.
The Pound to Euro (GBP/EUR) exchange rate can expect to see gains if the BoE hints that it could still hike UK interest rates once before the end of the year.
Pound (GBP) Exchange Rates Pressured by Brexit Uncertainties ahead of BoE News
Britain’s economic outlook remains murky and the Brexit process faced yet more obstacles in recent weeks, reminding markets not to get too bullish on the Pound.
Sterling has been limp this week amid a lack of fresh UK ecostats, as well as complications in the UK government’s Brexit process.
While the UK government’s latest Brexit bill did make it through the House of Commons, it was not without concessions and the vote was still very close.
This ultimately weighed on market confidence in UK Prime Minister Theresa May’s ability to deliver a smooth Brexit process, particularly with the formal Brexit date now much less than a year away.
On Thursday morning, Britain’s May public sector net borrowing report actually beat forecasts. However, as the Bank of England (BoE) policy decision approached it had little impact on Sterling trade.
Euro (EUR) Exchange Rate Demand Limited by European Central Bank (ECB) Speculation
The Pound to Euro (GBP/EUR) exchange rate may have seen further losses this week, but market demand for the Euro has been highly limited by market jitters about the European Central Bank’s (ECB) outlook on the Eurozone economy.
While the ECB has shown a relatively confident stance on the Eurozone’s economic outlook and has indicated that monetary policy will tighten over the coming two years, the Euro’s appeal has been limited by the cautious tone from officials.
ECB President Mario Draghi has insisted that the bank is comfortable waiting as long as necessary for inflation to reach targets before considering hiking Eurozone interest rates.
On top of this, reports emerged on Wednesday that ECB officials were actually more concerned about the possibility of a US-China trade war than they let on.
The Eurozone’s economic outlook is generally solid which has helped it keep GBP/EUR near the low level of 1.13, but Euro trade lacks the drive to sustain further gains.
Pound to Euro (GBP/EUR) Forecast: Markit’s Eurozone PMIs to Cause Late-Week Movement
The biggest influence to the Pound to Euro (GBP/EUR) exchange rate outlook this week is the Bank of England’s (BoE) tone regarding Britain’s economic outlook, but the Eurozone outlook could be influenced by data due for publication on Friday.
Markit’s Eurozone PMI projections will be published on Friday morning and are likely to influence Euro trade if they surprise investors.
Germany’s key manufacturing PMI is forecast to have slowed from 56.9 to 56.2, with the overall composite Eurozone print forecast to have slipped from 54.1 to 53.9.
If the data beats forecasts, it will indicate that the Eurozone’s economic activity has been more resilient than expected. This could bolster the Eurozone economic outlook and push GBP/EUR lower.
Of course, optimistic Brexit developments or higher Bank of England (BoE) interest rate hike bets would keep the Pound to Euro (GBP/EUR) exchange rate outlook more buoyant than it has been for most of the week.
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