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Today's Best Euro Rate Slides but EUR/GBP Remains High Despite ECB Rhetoric

August 18, 2017 - Written by Minesh Chaudhari

The euro to pound sterling exchange rate ended the week's trade valued at 0.91339 on Saturday 19th August.

Analysts at Lloyds Bank highlight the EUR/GBP strength looks set to continue in the near-term:

"Still no change, with the current bull trend intact, despite traditional technical warning signs of a pullback. As we have highlighted, a break of support, which lies at 0.9075 today, is needed to confirm that process is underway with 0.8955 more important lower support. While over, we can see a test of key resistance in the 0.9175/80 region, but we suggest real caution at this area. A clear break there though leaves little ahead of the "flash-crash" highs in the 0.9400-0.9700 region."

Despite uncertainty about the European Central Bank (ECB) monetary policy outlook and some decent UK data over the last week, Sterling weakness has persisted and the euro has edged higher against the pound.

While down from this week’s best levels of 0.9141, the EUR/GBP exchange rate still trends above the week’s opening level of 0.9089 and above the key level of 0.91.

EUR Struggles to Hold Highs vs GBP on ECB Uncertainty



Hawkish Euro investors have been optimistic in recent months that as the Eurozone economy continues to gradually recover, the European Central Bank (ECB) could soon begin to wind back its aggressive quantitative easing (QE) measures.

Many economists have even predicted that the ECB will announce its intentions to tighten policy as soon as September’s policy decision.

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However, recent reports indicate that ECB President Mario Draghi will not be presenting any fresh forward guidance at the upcoming Monetary Policy Symposium in Jackson Hole. This disappointed Euro bulls.

On top of this, the ECB’s latest meeting minutes contained warnings about the potential strength of the Euro.

The bank noted that if the Euro overshoots too much, it could become a downside risk to Eurozone growth due to the bloc’s reliance on exports, which would in turn affect the ECB’s monetary policy outlook.

Petr Krpata, a research analyst from ING, commented that the ECB’s concerns were well-founded;

‘In fact, we believe that EUR/$ started heavily overshooting after this meeting, with moves above the 1.15 level (which was seen before President Draghi’s press conference) being unjustified. All-in-all, the tone of the minutes suggests that the ECB will indeed be cautious about the way it will communicate any future policy moves, with the dovish form of QE tapering being the most likely option.’


The past week’s Eurozone data was largely optimistic, with Eurozone growth looking to have been even better in Q2 2017 than previously expected.

However, with some analysts arguing that markets are too hawkish about the ECB, the Euro’s strength is limited.

GBP Fails to Find Support from Recent Data



The Pound has seen yet another session of weak trade and continues to trend relatively closely to its worst 2017 levels.

This was despite June’s employment stats beating expectations and indicating that Britain’s labour market is in decent health despite Brexit uncertainties.

Britain’s unemployment rate unexpectedly improved from 4.5% to 4.4% and more new jobs were made in the three months into June than expected.

Wage growth also beat expectations in the three months into June, coming in at 2.1% in both bonus and non-bonus prints.

July’s jobless claims results are optimistic too, indicating the solid labour market activity could continue in Q3.

Sterling ultimately remained weak though, largely due to slower than expected UK inflation and underwhelming UK retail sales stats.

UK retail sales slowed year-on-year, giving some ammo to recent concerns of a UK pay squeeze. Slower inflation also doused market speculation that the Bank of England (BoE) could tighten UK monetary policy any time soon.

According to Manuel Oliveri, FX strategist from Credit Agricole;

‘This week's wages and retail sales data did little to alter the growing market belief that a U.K. rate hike is likely only in the second half of 2018 and with a thin data calendar for the next couple of weeks, the market will be rangebound’


EUR GBP Exchange Rate Forecast: Eurozone PMIs in Focus



The coming week will see the publication of more notable Eurozone ecostats, but unless they support the possibility of tighter European Central Bank (ECB) monetary policy, the Euro’s potential for further gains is limited.

Confidence surveys will be published throughout the week, starting with ZEW’s surveys for Germany and the Eurozone on Tuesday and followed by GfK and Ifo confidence surveys on Friday.

Perhaps the most influential dataset due in the coming week will be Markit’s preliminary August PMIs for the Eurozone, which are due on Wednesday. These will give investors an idea of how the Eurozone economy is performing this month.

The Pound could see support if next week’s UK public sector borrowing or growth projections beat expectations, but unless investors are impressed by Brexit news the Pound outlook is limited too.

Overall, the Euro to Pound exchange rate could continue to see relatively flat trade.
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