Pound to Euro Forecast: Analysts Predict Losses for GBP/EUR on Disappointing UK Trade Data

April 10, 2015 - Written by John Cameron

STORY LINK Pound to Euro Forecast: Analysts Predict Losses for GBP/EUR on Disappointing UK Trade Data

The Bank of England surprised no-one when they announced earlier today that it will be maintaining its headline interest rate at its current record low level of 0.50% for another month. The BoE also revealed that it will be maintaining the level of funding available via its controversial Quantitative Easing scheme to £375bn.

David Kern of the British Chambers of Commerce explained earlier this afternoon that this was the sole course of action open to the Bank, ‘particularly at a time when inflation is down to zero and likely to fall into negative territory in the next few months. While official interest rates are very low, the fall in inflation over the past year has effectively raised interest rates in real terms, for both businesses and consumers.’

So, much as expected from the UK’s central bank, but the Pound Sterling has still given up ground against the other major global currencies on the day. The Sterling euro exchange rate has fallen back into the 1.3700s from an intraday peak of 1.3819 GBP EUR, while the Sterling US Dollar exchange rate has loitered for most of the day in the 1.4700s. Why?
Part of the reason behind the Pound’s losses lies behind the Sterling drop was contained in the latest UK import / export figures, published this morning. The key-note numbers revealed that Britain’s trade deficit increased during February thanks to weaker sales to the US. It appears likely that the dampened levels of demand for British goods in the States was in turn driven by the inclement weather conditions experienced in North America either side of the turn of the year.

In addition, the sharp recent upward movement for the Pound against the euro (currency:EUR) appears to have decreased euroland consumers’ appetite for British goods. Kern had a view on this phenomenon as well, observing that, ‘the UK's trade deficit with the EU reached a record high in the last three months, and while the EU is our largest trading partner.’ He went on to advise a policy of diversification, stating that, ‘it is vital that we capture more of the export market in the fast growing economies beyond Europe.’
Analysts forecast that the Pound Sterling may now endure further losses in the near-term.

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