EUR GBP Exchange Rate Trends Lower Ahead of UK Inflation

April 10, 2017 - Written by Ben Hughes

STORY LINK EUR GBP Exchange Rate Trends Lower Ahead of UK Inflation

The Euro to British Pound exchange rate continued to trade relatively flatly on Tuesday afternoon. Solid Eurozone and UK ecostats published in the morning kept both currencies sturdy.

Both currencies also benefitted from the day’s ‘safe haven’ rush. The Euro is considered a relatively stable currency, while UK government bonds are seen as a secure asset and are priced in GBP.

[Previously updated 11/04/2017]

Stronger-than-expected ZEW economic sentiment surveys offered support to the EUR GBP exchange rate, encouraging speculation that the Eurozone is in a stronger state at the start of the second quarter.

Even though there was no particular surprise from the latest UK inflation figures the Pound failed to find any momentum, remaining on a downtrend against many of the majors.

[Previously updated 10/04/2017]

Although Eurozone investor confidence was found to have strengthened solidly in April the Euro Pound exchange rate remained on a bearish trend.

Political Jitters Continue to Weigh on EUR

In spite of the Sentix investor confidence index strengthening from 20.7 to 23.9 the mood towards the single currency was generally muted at the start of the week.

Markets continue to view the likelihood of the European Central Bank (ECB) returning to a monetary tightening bias as a distant prospect, despite policymaker Yves Mensch noting that policy cannot remain loose forever.

Positive signs for Greece also failed to galvanise support for EUR exchange rates, even though inspectors are due to return to the country with a view to concluding the much-delayed bailout review.

The appeal of the Euro remains generally limited thanks to ongoing worries over the French presidential election, with market jitters likely to increase as the first round of voting approaches.

GBP Volatility to Come on UK Inflation Data

Demand for the Pound picked up, meanwhile, with investors piling back into the currency as the negative impact of February’s disappointing trade and production data faded.

Volatility is likely in response to the latest UK consumer price index report, although inflation is forecast to have slowed somewhat on the month in March.

Even so, investors could continue to bet on the odds of the Bank of England (BoE) being compelled to raise interest rates sooner rather than later.

As researchers at BBH noted:

‘Headline inflation may slow, but if it does, it will likely prove temporary. The past decline in sterling and the rally in energy prices have not completely worked their way through the system. Inflation has yet to peak in the UK.’

However, if Wednesday’s earnings data highlights the continued weakness in wage growth the EUR GBP exchange rate could benefit.

EUR GBP Exchange Rate Forecast: Increased Economic Sentiment Could Boost EUR

Confidence in the Euro could strengthen if the ZEW economic sentiment surveys paint a similarly improved picture of the domestic mood.

While stronger sentiment is unlikely to be enough to encourage the ECB to alter its current neutral-to-dovish policy outlook a positive showing here could still see the EUR GBP exchange rate return to an uptrend.

February’s Eurozone industrial production figure is also forecast to show an improvement on the year, with a higher level of output boding well for the health of the wider economy.

Any disappointment, however, could see the single currency trending lower across the board, particularly as rising global geopolitical tensions encourage investors to favour the safe-haven US Dollar.

If the Greek bailout review is concluded in the near future, though, the Euro could experience a fresh surge in support.

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TAGS: Euro Pound Forecasts