Euro to Pound (EUR/GBP) Ends Week Lower as Investors Focus on ECB Rate Decision

Yesterday’s surge in UK retail sales saw the Euro to Pound (EUR/GBP) exchange rate tumble to a three-week low.

The Euro was also struggling against peers like the US Dollar as European Central Bank officials heightened speculation surrounding the potential introduction of additional stimulus.

On Friday the Euro extended declines against the Pound as a measure of UK consumer confidence strengthened to its strongest level since before the onset of the global economic crisis, adding to the case for the Bank of England increasing interest rates in the medium term.

The common currency came under additional pressure and edged to a month low against the US Dollar as a report showed that consumer price inflation in Spain slowed.

In the view of currency strategist Adam Cole; ‘What you’re seeing is the market continuing to build expectations that the ECB will deliver some kind of easing next week. As it was last month, the danger is disappointment. We’d probably see a reverse of the Euro losses and a push back up to recent highs.’

However, the Euro did receive some support as Eurozone economic confidence climbed to 102.4 in March from 101.2 in February – an over three year high.

Economists had expected a reading of 101.4.

Before the close of European trading the Euro experienced something of a relief rally as German consumer price gains slowed by less than some investors anticipated.

The German consumer price index advanced by 0.3 per cent in March (month-on-month) and 1.0 per cent year-on-year.

EU harmonised consumer prices increased by 0.3 per cent on the month and 0.9 per cent on the year.

While this result certainly adds to the price pressures piling on the Eurozone, some investors were anticipating an even worse reading and Euro declines had largely been priced into the market, so the currency was able to recover some ground.

Bloomberg News quoted economist Annalisa Piazza as stating; ‘The ECB cannot afford to see downside risks for inflation expectations to materialise [but] the ECB is well aware that inflation will remain well below 2 per cent for a prolonged period of time and some seasonal volatility is expected to be tolerated near term.’

It is expected that next week’s Eurozone inflation figures will show that price gains slowed to 0.6 per cent this month from 0.7 per cent in February.

Next week Euro movement could also be inspired by German employment figures, Eurozone/German manufacturing and services PMI, Eurozone retail sales and German factory orders.

While the UK’s manufacturing/services PMI will also be of interest to the Euro to Pound (EUR/GBP) exchange rtae, the ECB’s interest rate decision on Thursday may well dictate the direction the Euro takes in the short-term.

Euro Exchange Rates

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate , 
Euro,,Pound Sterling,0.8274,
Euro,,US Dollar,1.3762,
Euro,,Canadian Dollar,1.5188,
Euro,,Australian Dollar,1.4897,
Euro,,New Zealand Dollar,1.5823 ,
US Dollar,,Euro ,0.7269,
Pound Sterling,,Euro,1.2080,
Canadian Dollar,,Euro,0.6575,
Australian Dollar,,Euro,0.6717,
New Zealand Dollar,,Euro,0.6335 ,
[/table]