Pound Sterling Euro (GBP/EUR) Exchange Rate Struggles as ECB Survey Raises Inflation Forecast
As the European Central Bank’s (ECB) Survey of Professional Forecasters suggested that inflation is likely to accelerate at a faster pace than previously thought this kept the Pound Sterling to Euro (GBP/EUR) exchange rate on a weak footing.
The Euro (EUR) benefitted from the more optimistic nature of the survey’s inflation forecasts, with headline inflation expected to clock in at 1.7% in 2018 and 2019.
This marked an improvement on the second quarter survey’s forecasts, potentially giving the ECB greater cause for confidence moving forward.
However, EUR exchange rates struggled to significantly capitalise on this uptick thanks to a corresponding downgrade to the Eurozone growth forecast.
After Thursday’s less hawkish ECB policy announcement and press conference the upside potential of the Euro has remained limited.
Muted French Growth Boosts GBP/EUR Exchange Rate
The Pound Sterling to Euro (GBP/EUR) exchange rate found some support on the back of the disappointing second quarter French gross domestic product figures.
Investors were discouraged to find that the French economy had failed to accelerate on the quarter, holding steady at sluggish growth of 0.2%.
This weaker showing highlights the lacklustre nature of recent Eurozone growth, indicating that rising global trade tensions have weighed heavily on European economies.
As a result, the currency union may struggle to regain any of its lost momentum in the months ahead unless tensions between the EU and US calm further.
If Eurozone growth continues to lag this is likely to encourage a greater sense of dovishness among ECB policymakers, reducing the likelihood of interest rates rising sooner rather than later.
Even so, an uptick in the German consumer price index next week could offer the Euro a fresh boost against Pound Sterling (GBP).
Brexit Impasse Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Potential
Brexit worries also weighed on the Pound Sterling to Euro (GBP/EUR) exchange rate as chief EU negotiator Michel Barnier rejected Theresa May’s customs proposals.
Barnier’s comments indicated that the two sides remain at odds over key elements of the Brexit issue, raising concerns that a final deal may still prove elusive.
The Pound also came under pressure as Barnier insisted that attempts to secure an intervention from EU leaders over his head were a waste of time.
As trade and the Irish border remain contentious issues this could keep GBP exchange rates on a soft footing for some days to come.
However, confidence in Pound Sterling may recover next week if the Bank of England (BoE) opts to raise interest rates at its August policy meeting.
Given how the odds of an imminent rate hike have diminished in recent weeks the Pound could see a strong increase in demand on the back of a vote to tighten policy.
On the other hand, if the BoE instead decides to leave rates on hold for another month the Pound Sterling to Euro (GBP/EUR) exchange rate may see further losses.
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