The Euro to Pound Sterling (EUR/GBP) exchange rate continued to take a dramatic tumble in the second half of Friday’s session as investors price in the possibility of a Bank of England rate hike in the near future.
UK figures have remained strong this week with Markit’s UK Manufacturing, Construction, Services and Composite Purchasing Managers indexes (PMI) all rising favourable above forecasts.
The UK trade deficit did widen on Friday; however the increase in imports is expected to be a result of cheap oil and increased demand.
Economist Paul Hollingsworth commented: ‘With Sterling around 15% higher on a trade-weighted basis than its 2009 low, and demand in the Eurozone still markedly weak, any further improvement in the trade deficit is likely to be fairly sluggish.’
Earlier… The Euro to Pound Sterling (EUR/GBP) exchange rate fell in the first half of Friday’s trading after German Industrial Production contracted in December on the year by -0.7%; economists had forecast the figure to stagnate at -0.3%.
Earlier… The Euro exchange rate continued to trend higher against the Pound Sterling (EUR/GBP) after the Bank of England (BoE) announced it would keep interest rates on hold.
Earlier… The Euro to Pound Sterling (EUR/GBP) exchange rate registered modest gains in the first half of Thursday’s European trading ahead of the Bank of England’s (BoE) interest rate decision.
The BoE is expected to leave the current 0.50% benchmark interest rate untouched after the release of January’s meeting minutes showed a united front of policymakers wished to keep rates on hold. It marked the first vote in five months that hawks Ian McCafferty and Martin Weale hadn’t voted to increase borrowing costs.
Furthermore, as the May general election draws closer, it is unlikely the central bank will make any major changes. Political events have been known to cause massive swings in the Sterling exchange rate; one example being last year’s Scottish referendum.
Economist Stuart Green commented: ‘They’ll be looking at the evidence from the Scottish referendum, which was an example of major political uncertainty. Now, the upcoming general election and the wage round are the two big uncertainties for the UK. Policy decisions are on hold at the moment.’
All 47 of Bloomberg economists believe there will be no change in the interest rate on Thursday. As well as political uncertainty, inflation has fallen as oil prices tumble. The BoE has suggested that inflation could temporarily dip below 0.0% before recovering.
ECB Toughens Stance Against Greece – Euro (EUR) Exchange Rate Softens
Meanwhile, the Euro has softened broadly against other majors as Greek negotiations heat up. The European Central Bank (ECB) has now limited Greece’s access to liquidity amid negotiations, by no longer accepting Greek government bonds as collateral to borrow money.
ECB chief economist Peter Praet defended the move, stating: ‘The conditions of access to liquidity from the European Central Bank are clear… If the conditions are not met anymore, the ECB must draw the consequences.’
However, the move has been deemed ‘aggressive’ by many economists as the ECB wasn’t expected to make the decision until the end of the month.
Industry expert Stan Shamu commented: ‘The ECB went as far as saying it can no longer assume bailout negotiations will be concluded successfully. Given Syriza was voted in to make some changes and take an aggressive stance, many now fear this will not be taken easily by the Greek population if the new government yields. Additionally, the ECB announcement is likely to result in a run on the banks…’
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast
The Euro to Pound Sterling (EUR/GBP) exchange rate could fluctuate throughout the day as European Central Bank officials speak. In addition, the BoE interest rate decision could have consequences for the Pound Sterling to Euro (GBP/EUR) exchange rate.
The Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7470. The Pound Sterling to Euro (GBP/EUR) exchange rate is residing at 1.3392.
