After a flat morning, the Euro Pound exchange rate advanced slightly towards the end of Monday’s European session.
The Euro was bolstered slightly by news that French President Emmanuel Macron had picked Edouard Philippe as his prime minister.
Sterling, on the other hand, was weighed as investors continued to sell the currency after last week’s news. UK general election excitement had also subsided somewhat.
[Published 11:02 BST 15/05/2017]
The Euro Pound exchange rate has seen mixed movement in recent weeks as the long-term outlooks of both the Eurozone and Britain are higher due to recent political news and ecostats.
Last week saw EUR GBP advance slightly due to disappointing Bank of England (BoE) news and the pair opened this week at the level of 0.8482.
The Euro softened as it was sold off in profit-taking following the election of Emmanuel Macron as France’s next President. However, overall his election has been seen as a positive for Euro exchange rates despite last week’s Euro selloff.
Meanwhile, the Pound was sold later in the week due to news that the BoE is still taking a cautious approach to monetary policy in the short to mid-term.
Investors had been hoping that strong inflation and solid UK economic activity could pressure the BoE into hiking UK interest rates sooner than 2019.
However, after last week’s BoE meeting, more analysts are suggesting that tighter policy from the BoE may not be likely until 2019 after all.
The bank also downgraded its 2017 UK growth forecast, believing that higher inflation and slower wage growth would cause a drop in the living conditions of UK citizens.
What’s more, BoE minutes revealed that its forecasts were made under the assumption of the Brexit process going smoothly, meaning poor UK-EU negotiations could sour things further.
With markets increasingly concerned about how Britain’s economy will fare for the rest of 2017 and 2018, the long-term Pound outlook has worsened.
This week’s data also has the potential to alter the Euro Pound exchange rate outlook, particularly with key ecostats due to be published on Tuesday and Wednesday.
Tuesday will see the publication of multiple Q1 Gross Domestic Product (GDP) estimates from throughout the Eurozone, including Italy, the Netherlands and the Eurozone as a whole. Eurozone growth is forecast to have slowed slightly from 1.8% to 1.7% year-on-year in Q1.
Other Eurozone data due for publication on Tuesday includes March’s trade balance data for the bloc and ZEW’s May economic sentiment survey results for Germany and the Eurozone as a whole.
Tuesday will also be a key session for the Pound as April’s UK Consumer Price Index (CPI) results will be published. Analysts predict inflation will remain at 0.4% month-on-month and increase from 2.3% to 2.6% year-on-year.
Britain’s inflation data could have mixed effects on Pound exchange rates. Higher inflation could pressure the BoE into tightening monetary policy sooner but may worsen UK living conditions if wage growth doesn’t improve.
On the other hand, lower inflation would make the BoE even less likely to hike interest rates any time soon but may take pressure off UK citizens and support the all-important services sector.
As a result, Tuesday’s session is vital for the Euro outlook but even more so for the Pound’s.
Wednesday’s session will also be vital for Eurozone and UK data. The Eurozone’s final April inflation results will be published, as will Britain’s March employment results and April’s jobless claims figures.
At the time of writing this article, the Euro Pound exchange rate trended in the region of 0.8465. The Pound to Euro exchange rate traded at around 1.1810.
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