This week a neutral policy stance from the Bank of England and a lack of particularly influential economic developments in the UK or Eurozone saw the Pound to Euro exchange rate reach Friday in a slightly softer position.
As European trading progressed yesterday the Pound also edged lower in reaction to poor UK construction output data.
Construction output unexpectedly fell by 2.8 per cent in February, month-on-month, with declines being recorded in both the maintenance and new work sectors.
Economists had expected a smaller drop of 1.3 per cent.
Although the monthly fall was largely the result of unseasonable weather conditions, as one Scotiabank industry expert noted; ‘Even if we get a reasonable bounceback in March, today’s figure should hold back overall growth.’
However, Markit economist Chris Williamson envisages a rebound in construction activity in March and comments that ‘rising business investment will spur further commercial construction activity, while at the same time house-builders are showing signs of responding to the increased demand for residential property.’
The Euro, on the other hand, experienced minimal movement and displayed little reaction to data confirming that German inflation slowed in March.
But in the long-term industry experts are expecting the BoE to begin a period of tightening stimulus before the end of the year and for the Pound to advance as a result.
As Omer Esiner of Commonwealth Foreign Exchange notes; ‘The BoE expectedly left its key lending rate unchanged at 0.50% and made no changes to its £375 billion asset purchase program. While no statement was released, investors continue to expect that the BoE will lead other central banks in policy tightening, a view that continues to support the GBP.’
While the BoE has adapted its forward guidance policy, the UK unemployment rate is still likely to have a considerable impact on when the central bank introduces an interest rate hike, and UK jobs figures are due out next week.
If the nation’s unemployment rate declines the pressure on the BoE to alter policy will mount and the Pound could resume its upward trend.
A particularly notable result may finally spark some currency market volatility and see the GBP/EUR pairing break out of its narrow trading range.
Over in the Eurozone, inflation figures for the currency bloc will be in focus.
If consumer prices slow again, speculation surrounding the European Central Bank being forced into taking action at its next policy meeting should lead to Euro losses.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6731 ,
Pound Sterling,,Euro,1.2042,
Pound Sterling,,Australian Dollar,1.7788,
Pound Sterling,,New Zealand Dollar,1.9283 ,
US Dollar,,Pound Sterling,0.5979,
Euro,,Pound Sterling,0.8304,
Australian Dollar,,Pound Sterling,0.5625,
New Zealand Dollar,,Pound Sterling,0.5181,
[/table]
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