GBP/EUR Trends above 1.27
The Pound Sterling to Euro (GBP/EUR) exchange rate closed out the week trading in the region of 1.2743, having fallen from the high of 1.2804 achieved earlier in the session.
A variety of factors contributed to Sterling bombing against the US Dollar this week, not least speculation that the Federal Reserve will increase interest rates before the Bank of England (BOE).
However, with the Euro coming under pressure of its own, the Pound was able to hold its own against the common currency.
Thursday’s dovish policy statement from the European Central Bank (ECB) was enough to send the GBP/EUR exchange rate briefly to the 1.28 level, but Germany’s impressive trade report undermined these gains on Friday.
With the weekend looming, the Pound also softened in response to the news that the UK’s trade deficit widened in September.
BoE to Hold Rates, Carney Says Increases Will be Gradual
Friday also saw BoE Governor Mark Carney give a speech in Paris. The central banker commented; ‘Since the crisis of 2008, virtually all credit growth has been in the capital markets … it’s a consequence of a series of regulatory reforms. The implicit subsidies – effectively too big to fail and the likelihood of government support – trust me when things were under stress, that subsidy was massive.’
Carney went on to note that as central banks begin to increase interest rates the low volatility environment will begin to change. He added that when the BoE does start hiking borrowing costs the increases will be gradual.
Pound Sterling (GBP) Could Advance on Wage Data
There are several factors which could influence the Pound Sterling to Euro (GBP/EUR) exchange rate in the week ahead.
One of the most influential data releases to look out for is the UK’s employment report.
While a solid jobs gain would be Pound supportive, investors will be paying closer attention to the average wage figures.
The BoE has hinted that interest rates won’t be increased until wage growth rises in line with inflation. If average earnings fail to increase, the Pound to Euro exchange rate could fall in the middle of the week.
BoE Inflation Report Forecast to Impact Pound
Further GBP/EUR exchange rate movement could be triggered by the BoE’s inflation forecast. Consumer price gains have slowed in recent months, reducing the urgency of a rate increase. If the central bank projects slower inflation for the foreseeable future, rate bets will be pushed back to next summer, causing additional Pound losses.
In the view of currency strategist Peter Kinsella; ‘The Pound may weaken to 1.55 [against the US Dollar] next week. We have BOE next week. What hasn’t been priced in is any sort of tinkering with their growth forecasts toward a slightly lower growth level. That being the case, you’ll see some of the market reprice their rate hike expectations for the BOE next year.’
However, there could be hope for the Pound yet.
As stated by currency strategist Jane Foley; ‘With Sterling, one of the things that’s bothering me right now is whether or not the market has oversold it. Yes the external sector in the UK is vulnerable to the slowdown in Europe, but the domestic economy is still quite well positioned, so there is scope for Sterling to pull back a little bit of ground.’
Greece Back in the Spotlight
The Pound Sterling to Euro exchange rate held declines over the weekend, even as Greek issues resurfaced.
In recent months, concerns of a slowdown in Germany and fundamental weakness in France have been dominating the headlines in the Eurozone.
However, in 2012 Greece was the center of attention as the nation hovered on the brink of financial collapse and investors placed bets on a potential ‘Grexit’.
Those old worries returned to the forefront on Saturday as Dutch Finance Minister Jeroen Dijsselbloem asserted that the nation may need preemptive aid in the form of a credit line. The credit line would be introduced at the beginning of next year and would be underpinned by policy conditions.
Dijsselbloem went on to note that the International Monetary Fund should exert its influence over the scheme. He noted; ‘Taking into account the still-fragile market sentiment and the many reform challenges still lying ahead, there is strong support for a precautionary credit line in a form of an existing ESM tool called the ECCL, an Enhanced-Conditions Credit Line. There’s also a broad understanding that the IMF needs to continue being involved.’
Whether or not the Eurozone’s current headaches will be added to by fresh Greek issues remains to be seen.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2740
BoE’s Carney Says No More Bank Bailouts
As the European session opened the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in slightly weaker position.
The Pound derived little support after Bank of England Governor Mark Carney outlined a new criteria for ensuring creditors shoulder the burden of bank’s losses.
Carney stated; ‘Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system.’
With the Eurozone’s Sentix Investor Confidence gauge due out later this morning, further GBP/EUR movement can be expected. The UK’s Lloyds Employment Confidence measure is less likely to have an impact.
Eurozone Confidence Improves
The Pound Sterling to Euro (GBP/EUR) exchange rate softened over the course of local trading on Monday as the Euro received a very modest boost in the form of an improved investor confidence reading for the Eurozone.
The Sentix gauge of sentiment had been expected to edge slightly lower in November but it actually improved from -13.8 to -11.9. However, as the index remained firmly in negative territory its positive impact on the Euro was limited.
As economic reports for the Eurozone are in short supply tomorrow, the British Retail Consortium’s Like-for-Like sales report is likely to drive Pound Sterling to Euro exchange rate movement.
Pound Sterling (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.5898,
Pound Sterling,,Euro,1.2724,
Pound Sterling,,Australian Dollar,1.8328,
Pound Sterling,,New Zealand Dollar,2.0371,
US Dollar,,Pound Sterling,0.6290,
Euro,,Pound Sterling,0.7858,
Australian Dollar,,Pound Sterling,0.5454,
New Zealand Dollar,,Pound Sterling,0.4908,
[/table]
