Pound to Euro Exchange Rate Begins to Recover after BoE Bets Cause Weekly Plummet
Last week, a surprise fall in Bank of England (BoE) interest rate hike bets caused the Pound to Euro (GBP/EUR) exchange rate to plummet by around a cent and a half.
In what was one of the sharpest GBP/EUR drops in months, GBP/EUR opened the week at the level of 1.1540 and briefly touched on a 10-month-high of 1.1598 on firming Bank of England (BoE) rate hike bets.
However, following disappointing UK data and BoE comments perceived as dovish, GBP/EUR plunged and shed most of the gains seen throughout April. The pair closed the week at the level of 1.1388.
Since markets opened this week, continued speculation from analysts that the BoE could still be on track to hike UK interest rates more than once this year has helped the Pound to Euro (GBP/EUR) exchange rate to recover slightly.
The pair currently trends above the level of 1.14 again, but unless upcoming UK data such as growth results impress investors, the Pound’s (GBP) recovery may be limited.
Pound (GBP) Exchange Rates Supported by Bullish Analysts
Despite a lack of strong UK data in recent sessions and weaker Bank of England (BoE) interest rate hike bets, the Pound climbed against most majors during Monday’s Asian session.
The British currency was supported by a forecast from the EY Item Club, predicting that the bank would still hike UK interest rates twice in 2018 and twice again in 2019.
According to Howard Archer, EY Item Club’s chief economist, UK consumers are in a better position to withstand higher rates too;
‘In addition, the burden of interest payments to the average household was at a record low at the end of 2017, and so consumers are in a relatively healthy position to cope with dearer money,’
The group also predicted that UK growth would reach 1.6% in 2018 and 1.7% in 2019.
If the Bank of England did hike UK interest rates four times over the next two years, this would deepen the perceived policy divergence between the BoE and the European Central Bank (ECB).
This outlook has helped the Pound to recover slightly against the Euro (EUR).
Euro (EUR) Exchange Rates Avoid Losses as Eurozone PMIs Beat Forecasts
After a disappointing set of Eurozone PMIs in March, could the Eurozone economy have seen a stronger than expected performance in April?
Demand for the Euro slightly improved following the publication of the Eurozone’s April PMI projections from Markit, which beat forecasts in many notable prints.
German manufacturing slowed much less than expected, slipping from 58.2 to 58.1 rather than the forecast 57.5.
Similarly, while Eurozone manufacturing did slow, Eurozone services actually improved. Overall, the Eurozone composite PMI is projected to stay at 55.2 rather than slow to the estimated 54.9.
Still, the Euro’s strength in response to this report was minor. As the data did little to boost European Central Bank (ECB) interest rate hike bets, the Euro was unable to avoid falling slightly against the Pound.
Recent Eurozone inflation data has been modest and subdued, leaving Euro traders doubtful that the ECB will be taking a more hawkish tone on monetary policy any time soon.
Pound to Euro (GBP/EUR) Forecast: European Central Bank (ECB) Decision and UK Data Ahead
Whether or not the Pound continues to regain last week’s major losses depends on how strong this week’s UK data is.
Most of it will be generally low influence, with CBI data coming in on Tuesday and Thursday. Friday’s UK Gross Domestic Product (GDP) projections are much more likely to be influential to Pound trade.
If the UK is projected to have seen stronger than expected growth in Q1, Bank of England (BoE) interest rate hike bets could rise and the Pound would strengthen.
Still, until then it could be the Euro that drives GBP/EUR movement most, with key Eurozone confidence stats due in the coming days and the European Central Bank’s (ECB) anticipated April policy decision to take place on Thursday.
The ECB is not expected to make any changes to Eurozone monetary policy in its upcoming meeting, but any perceived stance shifts from the bank could have a major impact on the Euro.
The Pound to Euro (GBP/EUR) exchange rate could see even further losses this week for example, if the ECB shows more optimism than expected about the path of Eurozone inflation.
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