Today's Pound to Euro (GBP/EUR) Forecast, Analysis & Exchange Rates Outlook

July 19, 2014 - Written by David Woodsmith

STORY LINK Today's Pound to Euro (GBP/EUR) Forecast, Analysis & Exchange Rates Outlook

The British Pound Sterling (GBP) began last week near best 23-month euro and 6 year US dollar exchange rate levels even though data released in the previous week showed that construction and manufacturing output softened last month. The Pound to euro rate today stands at 1.26243 GBP/EUR.

Despite the dip investors were still maintaining their bets that the Bank of England will chose to raise interest rates before the end of the year. Those expectations seemed to be justified this week after UK inflation data came in better than forecast and was just below the BoE target rate of 2%.

According to the data consumer price inflation in the UK accelerated to 1.9%. Expectations for a rate increase by year’s end was also supported by data released on Wednesday which showed that unemployment fell to a new six-year low level of 6.5% in the second quarter of the year. The data showed that the number of people in a job increased to 929,000, the biggest increase in employment seen since records began 40 years ago.

The total number of UK citizens out of work also dropped by 121,000 and the number of people claiming unemployment benefits fell by 36,300 in June, suggesting that the UK labour market has recovered strongly.

The Pound briefly surged to a fresh two-year high against the Euro upon the news but those gains didn’t last long as a separate report showed that wage growth remained pitifully poor. The wages data weighed upon the Pound and prompted investors to embark on a bout of profit taking, a move which sent the currency lower over the course of Thursday and Friday.

With the UK economy continuing to outperform the Eurozone we can expect the Pound to continue to make further gains against the single currency.

The Euro meanwhile began the week holding ground against a number of peers as investors awaited monetary policy testimony by European Central Bank Governor Mario Draghi.

The currency showed little reaction to yesterday’s comments by European Central Bank President Mario Draghi who introduced a new stimulus tool. The plan will see the ECB hand €700 billion to the regions banks in hopes that it will keep the system flush with cash.

Below Forecast German Data Sent the Euro Exchange Rate Weaker

The Euro then went onto experience light trade as the market awaited the publication of the latest ZEW Economic Sentiment data for Germany and the wider Eurozone. The data weakened the Euro as it came in worse than forecast.

Sentiment in the Eurozone’s largest economy waned to a four year low with the ZEW index falling to 27.1 points. Economists had been calling for a rise to 28.0. The Euro was also softened further after the Eurozone’s latest balance of trade data came in below forecasts adding to a recent run of disappointing data reports.

The Euro plunged to a five-month low against the safe haven Japanese Yen and weakened against most of its major peers as investors turned to safer assets in the wake of the crashing of Malaysia flight 17.

All 298 people on board were killed and tensions rose as the Ukrainian government accused pro-Russian separatist rebels of shooting it down with the aid of equipment provided by Moscow. The conflict in Ukraine has already had a negative impact on the Eurozone economy and any further escalation will increase that pressure.

The single currency also spent much of last week weaker against the US Dollar as the European Central Banks economic outlook diverged from that of the Federal Reserve. Whilst Mario Draghi is considering introducing quantitative easing, Janet Yellen from the Fed will be cancelling the USA’s own monetary easing programme by October.

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