Pound Sterling to Euro (GBP/EUR) Exchange Rate Stages a Rebound
After industry experts bet that the lower rate of UK inflation would benefit UK consumers, the Pound Sterling to Euro (GBP/EUR) exchange rate staged a modest rebound and recouped much of the losses recorded earlier in the session.
If tomorrow’s UK employment data shows either a decline in the jobless rate or an increase in average earnings it could give the Pound a boost and trigger GBP/EUR gains.
The Bank of England’s (BoE) policy meeting minutes will also have an impact on the Pound.
If the Monetary Policy Committee (MPC) remained split on the subject of interest rates it would support Sterling. A greater divide than the 2:7 seen in recent months would really give the Pound a lift.
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GBP/EUR Exchange Rate Trends Lower after UK Inflation Data
The Pound Sterling to Euro (GBP/EUR) exchange rate put in a mixed performance as the Eurozone released both positive and negative PMI reports for the currency bloc.
The French Manufacturing PMI fell from 48.4 to 47.9 in December, moving further below the 50 mark separating growth from contraction and defying expectations for an increase to 48.6.
However, German Manufacturing PMI climbed from 49.5 to 51.2, smashing forecasts for a reading of 50.3.
Additional GBP/EUR movement followed the release of the UK’s consumer price index.
Rather than easing from 1.3% to 1.2%, as forecast, CPI fell to 1.0%.
The result supports comments issued by the Bank of England regarding the pace of consumer price gains slowing below 1.0% over the next six months.
A surprisingly strong German ZEW economic sentiment survey gave the Euro a further boost against its British rival and the Pound Sterling to Euro (GBP/EUR) exchange rate weakened to 1.2492.
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GBP/EUR Exchange Rate Tends 0.2% Higher
The Pound Sterling to Euro (GBP/EUR) exchange rate climbed by 0.2% during the European session, brushing a high of 1.2643.
The GBP/EUR exchange rate strengthened even as the Rightmove House Price report recorded a record fall in property values in December.
House prices dropped by -3.3% on the month.
However, Rightmove asserted that price gains are on the cards for next year, with an increase of between 4-5% expected in 2015.
Rightmove suggested that price pressures would be driven by a shortage of property for sale, tensions in the run up to the general election and a limited choice of ‘trade up’ properties.
The Pound Sterling to Euro (GBP/EUR) exchange rate was little changed after the Confederation of British Industry’s Trends Selling Prices index climbed from -1 to 7, rather than advancing to -3 as forecast. The Trends Total Orders data rose from 3 to 5.
In the hours ahead, GBP/EUR movement could be limited by a lack of influential economic releases for either the UK or Eurozone.
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GBP/EUR Exchange Rate Could Fluctuate after House Price Data
If today’s UK Rightmove House Price report shows a decline in property values in December, it could cause a softening in the Pound Sterling to Euro (GBP/EUR) exchange rate.
A cooling of the UK property sector would give the Bank of England (BoE) more scope to leave interest rates on hold for the foreseeable future.
The Confederation of British Industry’s Trends Selling and Trends Total Orders data could also cause GBP/EUR movement.
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The Pound Sterling to Euro (GBP/EUR) exchange rate fell below 1.27 during the week despite political upheaval in Greece, the increasing odds of additional European Central Bank (ECB) stimulus and mixed data from the Eurozone.
GBP/EUR Exchange Rate Stymied by UK Data
The Pound Sterling to Euro (GBP/EUR) exchange rate recently surged above 1.27 on the back of unexpectedly strong UK services data.
However, the GBP/EUR pairing has since shed these gains as a result of disappointing UK manufacturing/industrial production figures and the belief that the Bank of England (BoE) will delay increasing interest rates until the end of next year.
Friday’s less-than-spectacular UK Construction Output report cemented Sterling’s downtrend.
The unexpected -2.2% monthly drop in output saw industry expert Stefan Friedhoff comment; ‘Much of the evidence – both in surveys and anecdotally – points towards a market that is cooling slightly as the year draws to a close, so this official data is unlikely to come as a total surprise. Construction companies are grappling with myriad issues, including inflation-led cost overruns, a competitive bidding environment and labour constraints. The shortage of skilled workers is undermining current output levels and, unchecked, it threatens the long-term health of the sector.’
The GBP/EUR exchange rate continued trending lower as the Eurozone’s industrial production report showed a 0.1% monthly increase and employment in the currency bloc was shown to have increased by 0.2% in the third quarter on a quarter-on-quarter basis.
The modest rise in industrial output was hardly encouraging however, and Capital Economics noted; ‘Eurozone industrial data for October confirm that, even before the resurgence of the Greek crisis and associated political and economic uncertainty, underlying economic activity was very weak.’
BoE Minutes to Cause Pound Sterling (GBP) Exchange Rate Movement
The publication of the Bank of England’s (BoE) meeting minutes will be one of the main causes of Pound Sterling to Euro (GBP/EUR) exchange rate volatility over the next few days.
If the minutes show a continuing divide among the Monetary Policy Committee on the subject of interest rate hikes the Pound could benefit.
Last week the BoE outlined upcoming changes to the way it conducts policy meetings. As said by industry expert Jason Douglas; ‘The Bank of England Thursday proposed sweeping changes to how its rate-setting Monetary Policy Committee explains its decisions following a review that recommended greater transparency. The central bank proposed that from 2016 the MPC move to eight meetings a year from 12 currently and that it publish minutes of its policy-making meetings on the same day as it announces its policy decisions. It also proposes publishing full transcripts of key policy meetings after a lag of eight years.’
UK Jobs Figures, CPI Data will Cause GBP/EUR Exchange Rate Fluctuations
Other UK reports to be aware of include employment stats, retail sales figures and inflation data.
A rise in average wage growth or acceleration in consumer price gains would give the Pound Sterling (GBP/EUR) exchange rate a boost.
However, the BoE recently asserted that inflation could fall below 1% over the next six months, so last month’s unexpected spike could be reversed.
The last batch of CPI data saw Economist James Knightley comment; ‘This is the slowest rate of inflation in five years and further falls are likely in the months ahead given the lack of pipeline price pressures within the PPI reports. Additionally, core inflation surprisingly fell from 1.9% to 1.5% last month, and so there is scope for some unwind of this.’
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast
Of course, reports from the Eurozone will also have a considerable impact on the Pound Sterling to Euro (GBP/EUR) exchange rate.
There are several highly-influential ecostats on the cards, including the currency bloc’s inflation stats, manufacturing, services and composite PMI’s, the ZEW economic sentiment surveys for Germany and the Eurozone and the German IFO Business Climate/Current Assessment/Expectations indexes.
Signs of slowing growth in the Eurozone and its largest economies will make the prospect of European Central Bank intervention in January even more likely and put the Euro under pressure.
The Pound Sterling to Euro (GBP/EUR) exchange rate closed out Friday’s European session trending in the region of 1.2630.
