The Euro Pound exchange rate could limit its losses this week if Eurozone data continues to impress, unless the Bank of England (BoE) takes a surprisingly hawkish tone during its policy decision on Thursday. EUR GBP slipped from 0.8975 to 0.8948 last week, but the pair remains less than half a penny away from its 2017 highs.
Euro (EUR) Holds Ground as Eurozone Data Impresses
The Euro continues to trend relatively close to this year’s best levels and limit its losses thanks to recent Eurozone ecostats impressing traders and the relatively low appeal of rival currencies like the Pound.
The Eurozone’s economic outlook remained sturdy following the publication of Monday’s datasets, which largely met or exceeded expectations.
Most notable was the Eurozone inflation projection for July, which met expectations and looks on track to come in at 1.3% year-on-year.
Eurozone unemployment beat expectations of 9.2% and improved to 9.1% in June. The May figure was also revised from 9.3% to 9.2%, indicating strengthening employment in the bloc.
Still, not all the day’s data was impressive. Germany’s year-on-year retail sales results from June were forecast to slow to 2.7% but instead dropped to 1.5%.
As some Eurozone data fell short and the Euro’s potential for further gains is limited after its recent rallies, the shared currency slipped slightly as Sterling recovers.
There’s plenty more to alter the Euro outlook in the coming days with a slew of influential stats due on Tuesday. German unemployment data from July, Markit’s final July PMIs for the Eurozone, and the Eurozone’s Q2 Gross Domestic Product (GDP) projections will be published.
Later in the week, Eurozone retail stats could also influence the Euro outlook.
Investors will be most focused on anything which could make the European Central Bank (ECB) more or less likely to withdraw its quantitative easing (QE) package.
Analysts predict the Euro will see more strength in the coming months if the ECB begins to take a more hawkish tone towards the end of the year.
Pound (GBP) Outlook Still Highly Uncertain
Investors hope that this week’s Bank of England (BoE) policy decision will give clearer direction to Pound trade, as recent UK data and Brexit developments have given traders little reason to buy the Pound.
Last week’s UK Gross Domestic Product (GDP) projections for Q2 met expectations and CBI’s latest distributive trades figures improved. These were enough to persuade some traders to buy the cheap Pound but were overall too low-influence to help Sterling make a significant recovery.
Political uncertainties remain in focus too amid the ongoing Brexit process. According to reports, UK Chancellor Philip Hammond and Trade Minister Liam Fox disagree on how the UK government should handle immigration during a proposed Brexit transitionary period beginning in 2019.
Thursday’s BoE decision is likely to offer some clarity on how Britain’s current economic outlook will impact (or not impact) monetary policy.
For example, did June’s slower UK inflation results give the BoE more reason to leave monetary policy frozen? If this week’s BoE meeting sees more policymakers voting to leave rates frozen, Sterling is likely to weaken.
If the bank is perceived as more cautious since the last policy decision, this would also leave the Pound outlook lower this week.
Still, even if the BoE’s tone becomes more cautious or dovish, Sterling could be supported in the late-week if Britain’s July services PMI from Markit beats expectations.
EUR GBP Interbank Rate
At the time of writing, the EUR GBP exchange rate trended in the region of 0.8948. The Pound to Euro exchange rate traded at around 1.1175.
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