EUR to GBP Exchange Rate Forecast ? European Central Bank (ECB) Meeting in Focus

July 19, 2017 - Written by Tim Boyer

STORY LINK EUR to GBP Exchange Rate Forecast ? European Central Bank (ECB) Meeting in Focus

Anticipation for Thursday’s key session kept the Euro to British Pound exchange rate relatively flat throughout Wednesday trade. If the European Central Bank (ECB) takes a hawkish stance, the Euro could see a late-week surge.

While it has slipped from this week’s highest level of 0.8897, the EUR/GBP exchange rate has sustained most of the week’s gains. EUR/GBP has advanced from 0.8754 to around 0.8850 so far this week.

EUR Demand Limited as Traders Await ECB Meeting

The Euro’s gains have been limited this week by mid to long-term uncertainty about the European Central Bank’s (ECB) monetary policy outlook.

Speculation is heating up on whether the ECB is preparing to signal the eventual end of its aggressive quantitative easing (QE) measures, or whether the bank is more likely to leave policy frozen for a while longer.

Analysts have argued for both possibilities. Some believe the bank will announce the end-date of its QE program during September’s policy decision, while other reports suggest the ECB is hesitant to announce or hint at any end-date until it is confident the stimulus has done its work.

As the meeting approached, the Euro trended flatly on speculation that the ECB may not hint too strongly in either direction.

Some analysts believe the strength of the Euro could play into the tone the bank takes tomorrow. According to Benjamin Schroeder from ING;

‘A strong Euro has also raised expectations that they will not sound overly hawkish’

Euro traders have been little-influenced by this week’s ecostats so far.

Eurozone inflation met expectations in June, ZEW’s July economic sentiment surveys fell short of expectations, and Eurozone construction output in May slowed from 3.3% to 2.6%.

GBP Edges Away from Weekly Lows

Some investors bought the Pound from its cheapest levels on Wednesday. Weakness in the Euro helped the Pound to push EUR/GBP down from its best levels.

However, the Pound outlook is still much lower overall since this week’s UK inflation results from June were published.

UK inflation was forecast to remain at a high 2.9% year-on-year and slip from 0.3% to 0.2% month-on-month. The yearly rate came in at a slower-than-expected 2.6% while the monthly rate printed a stagnant 0%.

Slowing inflation likely relieved some of the pressure on the Bank of England (BoE). With inflation seemingly slowing and Britain’s economic outlook concerning, the BoE has plenty of reasons to keep monetary policy at its loosest levels on record.

Hawkish investors hoping for tighter policy from the BoE sold the Pound as BoE tightening bets dropped.

The lower inflation could be a plus for Britain’s long-term economic growth however. If inflation continues to slow and wage growth improves, the pay squeeze would lighten and UK consumers would be able to spend more comfortably.

As Britain’s economy is heavily consumer-facing, a boost in consumer activity would benefit Britain’s Gross Domestic Product (GDP) growth.

EUR/GBP Forecast: ECB Meeting and UK Retail Sales in Focus

Thursday’s session will be the most pivotal this week for the Euro to Pound exchange rate. Britain’s June retail sales results will be published, following by the European Central Bank’s (ECB) July monetary policy decision and ECB press conference later in the day.

With Euro traders eagerly looking for more forward guidance to persuade them to buy or sell the shared currency, the ECB meeting and press conference from bank President Mario Draghi has the most potential to impact EUR/GBP exchange rate movement.

While analysts don’t expect any major shift in tone from the ECB, any hawkish hints that the bank is edging towards ending its quantitative easing (QE) scheme could see the Euro advance towards the end of the week.

On the other hand, a more dovish tone, such as implication that the QE program may remain in place for the foreseeable future, would cause EUR/GBP to lose much of its recent gains.

As for the Pound, stronger-than-expected retail sales results would lead to hopes that Britain’s economy will be resilient later in the year despite the pay squeeze. This would also help the Pound to recover from this week’s losses.

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TAGS: Euro Pound Forecasts