The GBP to Euro exchange rate was holding steady in the region of 1.21 on Thursday as investors widely ignored positive data out of Germany and a speech given by European Central Bank President Mario Draghi had little impact on the market.
Yesterday saw Sterling lose ground to the single currency after policy meeting minutes released by the Bank of England showed that policy makers were unsure about the amount of slack in the UK economy and had differing views on the nation’s inflation outlook.
Next month’s minutes will be of greater interest to investors as they will include the news that UK unemployment fell below the bank’s target of 7%. As a result the Pound remains supported on expectations that interest rates could be increased early next year.
The Euro meanwhile found support earlier in the session from positive business sentiment data out of Germany. The data released by the Ifo institute showed that German businesses had widely shrugged off worries over the situation in Ukraine.
“The situation in eastern Ukraine remains volatile and dangerous and poses the most serious risk to the Eurozone recovery at the moment, but German businesses seem to estimate that the worst-case scenario of a war between Russian and Ukraine and escalating sanctions all the way to disruptions of Russian energy supplies to Europe remains unlikely,” said Christian Schulz of Berenberg Bank.
The Ifo’s business climate index increased more than expected, climbing to 111.2 in April up from the previous months figure of 110.7. Economists had been expecting the index to fall to 110.5.
ECB President Mario Draghi told a conference in Amsterdam that the bank’s policy stance may be affected by the continuing strengthening of the Euro.
“A rise in the exchange rate, all else being equal, implies a tightening of monetary conditions, a downward impact on inflation and potentially a threat to the ongoing recovery. If so this would call for policy action to maintain the current accommodative stance,” Draghi said. He added that a worsening of the medium term outlook for inflation may be the trigger for introducing an asset purchasing programme.
Following the speech the Euro was little moved against the majority of its major peers.
Friday Update
The Pound to Euro exchange rate was static throughout the European session on Friday, with the pairing barely affected by the UK’s retail sales report.
While UK sales including autos rose unexpectedly (clawing a 0.1 per cent gain rather than sliding by the 0.4 per cent forecast) the Pound failed to advance on the Euro.
A lack of significant Eurozone data limited Euro fluctuations and investors were looking ahead to next week’s stream of influential global economic reports for direction.
While this week’s impressive manufacturing/services PMI and unexpectedly upbeat German business confidence data buoyed the Euro, the common currency could well experience a reversal of fortunes next week if the Eurozone’s consumer price report fuels inflation concerns.
On Monday German retail sales figures could set the tone of the week. In February the nation posted a month-on-month retail sales surge of 1.3 per cent, so economists will be hoping for another strong result.
Tuesday is particularly data-heavy, with German consumer confidence, Eurozone economic/industrial/consumer sentiment figures all due for release before the German inflation report.
On Wednesday it will be Eurozone inflation and German unemployment driving Euro movement.
Euro volatility is likely to persist throughout the week, as Eurozone unemployment and manufacturing PMI data is released.
As the Euro to GBP pairing has been stuck trading in a narrow range for several weeks now investors will be hoping that data surprises expectations and pushes the Euro out of its current trend.
Of course UK growth data and the US non-farm payrolls report could also trigger market movement.
Euro Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,Pound Sterling,0.8233,
Euro,,US Dollar,1.3838,
Euro,,Canadian Dollar,1.5267,
Euro,,Australian Dollar,1.4930,
Euro,,New Zealand Dollar,1.6118,
US Dollar,,Euro ,0.7245,
Pound Sterling,,Euro,1.2150,
Canadian Dollar,,Euro,0.6549,
Australian Dollar,,Euro,0.6698,
New Zealand Dollar,,Euro,0.6199,
[/table]
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