The Euro to Pound (EUR/GBP) exchange rate is forecast to experience another volatile period next week as the currency market remains shaky on fears over slowing global growth.
Following last Friday’s disappointing UK trade data the Pound gave up earlier gains against the Euro. The report showed that the nation’s trade deficit increased more than forecast, raising concerns that the UK economy is slowing.
The Office for National Statistics said that the UK’s trade deficit widened to £9.82 billion in September from £8.95 billion in August, a figure which was revised from a previously estimated deficit of £9.10 billion.
The report came a day after Bank of England policy makers voted to leave interest rates unchanged at the record low level of 0.5%. Economists raised their bets that the bank’s policy makers have reaffirmed their commitment to leave interest rates unchanged until next year.
Comments made by BoE Governor Mark Carney did little to change that view. Speaking at the International Symposium of the Banque de France, Mr Carney said that a return to normal market conditions (e.g raising interest rates) ‘could be bumpy’.
The Euro fell sharply over the course of the week as concerns over the Eurozone economy increased on the back of more disappointing data out of Germany and the wider region. The currency saw a broad selloff on Thursday after European Central Bank announced that it would soon start to buy asset-backed assets in a bid to help the economy. Draghi also reaffirmed his commitment to introduce unconventional measures to aid growth and tackle low inflation.
‘The market was not excessively short on the Euro before Draghi spoke, but he was sufficiently dovish for investors to jump back into short positions again,’ said a currency strategist from BNP Paribas.
Weekly EUR/GBP Exchange Rate Forecast: Ukraine Could Influence
With both the Pound and Euro coming under pressure from disappointing data releases, next week looks set to begin with both currencies struggling to find direction. One factor in favour of Pound strength will be the fact that the UK economy is still performing far better than that of the Eurozone. More weak data out of the single currency bloc and we can expect the Euro to weaken.
In the opinion of some industry experts, the recent weakness in the Pound has more to do with the dominance of the US Dollar than the under performance of the UK economy.
As forex strategist Chris Turner notes; ‘I think it’s more caught up with the broad Dollar and Euro trends at the moment.’
Monday sees the release of the latest Sentix Investor Sentiment report. Traders are forecasting that sentiment will decline from October’s figure of -13.7 to -14.94.
Also of interest will be events in Ukraine. Violence has erupted once again with the Ukraine military saying that it had killed 200 rebel fighters in Donetsk on Friday tensions are escalating quickly.
‘Insurgents who were shelling Ukrainian troop positions at Donetsk Airport yesterday were killed by government troop artillery strikes,” said Ukraine’s defence Ministry on Friday.
Signs of Russia sending more equipment and troops into Eastern Ukraine could also see more sanctions being imposed by the West.
The big mover for the EUR/GBP exchange rate however will come on Wednesday when the UK releases its latest unemployment and wage growth data. Disappointing figures for those and we can expect the Pound to give up more ground against the single currency and other peers. On the same day the Eurozone releases Industrial Production data.
The next batch of EUR/GBP relevant data will be released on Friday. German GDP growth rate data will be closely watched to see if the nation has avoided a recession. GDP data for the wider Eurozone is also due for publication. Inflation rate data will also impact upon the currency pair.
According to FastFT; ‘European economic activity is expected to eke out growth in the third quarter, although several economists expect gross domestic product could remain unchanged from a quarter earlier. Consensus forecasts are for a 0.1 per cent sequential rise in GDP and a 0.7 per cent year-on-year gain. The French economy is expected to have expanded 0.2 per cent from the previous quarter, with Germany, the region’s economic engine, forecast to grow 0.1 per cent sequentially.’
EUR/GBP Exchange Rate Mixed
The Euro received some support on Monday after data showed that Sentiment in the Eurozone improved slightly this month. Any gains offered by the report however were restrained after data out of Italy showed that the nation is continuing to struggle.
Statistics body ISTAT reported that Italian industrial production shrank by 0.9% month-on-month in September. Economists had expected a 0.2% decline.
That means that industrial production has shrunk by 1.1% over the last quarter, accelerating from a 0.5% decline in April-June. That’s the biggest fall since the last three months of 2012.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.7852,
Euro,,US Dollar,1.2486,
Euro,,Canadian Dollar,1.4125,
Euro,,Australian Dollar,1.4388,
Euro,,New Zealand Dollar,1.5983,
US Dollar,,Euro ,0.8009,
Pound Sterling,,Euro,1.2733,
Canadian Dollar,,Euro,0.7080,
Australian Dollar,,Euro,0.6948,
New Zealand Dollar,,Euro,0.6256,
[/table]
