The Pound Sterling to Euro (GBP/EUR) exchange rate recouped Tuesday’s Consumer Price Index inspired losses following the release of the Bank of England’s policy meeting minutes.
The minutes revealed that two members of the Monetary Policy Committee voted in favour of an immediate interest rate increase at the August gathering and the Pound to Euro pairing surged by over 0.3% in response.
In the minutes it was stated; ‘For two members, in particular, economic circumstances were sufficient to justify an immediate rise in Bank Rate. These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth could pick up. They noted that it was possible that wages were lagging developments in the labour market to some extent. […] Moreover, if recent robust GDP growth rates had been underpinned by stimulatory monetary policy, in addition to a release of pent-up demand driven by reduced uncertainty and improved credit conditions, than the erosion of spare capacity would be likely to remain rapid while policy remained expansionary.’
The minutes continued; ‘In the judgement of these members, even after a rise of 25 basis points in Bank Rate, monetary policy would remain extremely supportive.’
Yesterday’s disappointing inflation data dampened the odds of the Bank of England increasing interest rates in 2014, but that prospect appears more likely in the wake of the minutes and Sterling has risen accordingly.
The GBP to Euro exchange rate hit a high of 1.2543.
The appeal of the Euro was also compromised by concerning economic data for the Eurozone.
Germany’s Producer Price Index registered a -0.1% month-on-month decline in July rather than stagnating as expected. On the year, Germany’s producer price index was down -0.8%, also a steeper decline than anticipated.
According to industry expert Todd Buell; ‘Prices at the factory gates have an effect on, but don’t translate directly into, prices paid by consumers. Price pressures in the Eurozone remain at alarmingly low levels, leaving some experts pushing for more intervention from the European Central Bank. The most recent inflation data show consumer price inflation in the currency bloc at 0.4% in annual terms, well below the ECB’s medium-term target of just below 2%.’
Separate data showed that the seasonally adjusted level of construction output fell by -0.7% in June, month-on-month.
Construction output was down -2.3% in June from the same period of the previous year.
The fall was the second monthly decline and largely due to ‘building construction falling by 0.9% and civil engineering by 0.2% […] The decrease of 2.3% in production in construction in the Euro area in June 2014, compared with June 2013, is due to building construction falling by 2.0% and civil engineering by 3.4%.’
These were the latest in a stream of less-than-fantastic economic reports for the Eurozone and add to the case in favour of the Bank of England bringing in additional stimulus in the near future.
GBP to Euro Exchange Rate Forecast
The Pound Sterling to Euro exchange rate is likely to continue trading in its present range for the rest of the European session.
If tomorrow’s Markit Services, Manufacturing and Composite PMI for the Eurozone, Germany and France falls short of forecasts, the GBP/EUR exchange rate could trend higher towards the close of the week.
GBP to Euro & GBP to INR Softens after UK Retail Data Fails to Impress
This morning’s publication of the UK Retail Sales data has seen the Pound fall against the Euro and the Indian Rupee, although the declination is minimal at present.
UK Retail Sales posted a gain of 0.5% in July having been forecast to only grow by 0.4%. The positive monthly data has been overshadowed, however, by yearly Retail Sales figures which show an increase of 3.4%; having been forecast to rise by 3.5%.
A set of negative Eurozone data doesn’t bode well for Sterling either, given the strong trading relationship. Eurozone Composite, Manufacturing and Services PMI’s all produced slower-than-forecast growth. From a European perspective the negative Eurozone figures may not have a huge impact because German data produced positive results. German Composite, Manufacturing and Services PMI’s all exceeded expectations; with each PMI showing positive growth.
With nothing in terms of domestic data to provoke change, expect the Indian Rupee to be influenced by foreign currency movement. The Rupee is likely to soften if US data continues to impress and demand for the ‘Greenback’ increases with the mounting speculation of a rate hike in the near future.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7986.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2519.
The Pound Sterling to Indian Rupee (GBP/INR) exchange rate is currently trending in the region of 100.7980
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