Euro Pound Exchange Rate Analysis and EUR/GBP Currency Forecasts

July 5, 2014 - Written by Toni Johnson

STORY LINK Euro Pound Exchange Rate Analysis and EUR/GBP Currency Forecasts

The Euro (EUR) exchange rate managed to shrug off weaker than expected German retail sales data at the start of Monday’s session but held steady after a report showed that the Eurozone’s annual rate of inflation remained unchanged at its lowest level in more than four years as bank lending to businesses and households dropped.

The Pound Euro exchange rate was softer after the inflation data but Sterling was able to hold its position above the 1.70 GBP/USD level against the US Dollar. The currency was softened slightly by a bout of profit taking by investors over the weekend and on concerns that the election of new EU Commissioner Jean-Claude Juncker could increase the possibility of the UK edging further away from the EU.

The foreign exchange markets prior to the new trading week are:

- The pound to dollar exchange rate is 1.71601.
- The euro to pound exchange rate is 0.79224.
- The dollar to pound exchange rate is 0.58275.

GBP softened further against peers later in Monday’s session after data showed that mortgage approvals in the UK dropped to the lowest level seen in 11-months. Further losses for the currency were restrained however as the currency continued to be supported by market expectations that the Bank of England will be the first major Central Bank to raise interest rates. Something that is more likely after the US Fed effectively ruled out any rate rises in the near future.

The Euro (EUR) was supported by the data release which showed that the Eurozone’s annual rate of inflation held steady at 0.5% in June. The report eased some of the pressures on the European Central Bank to announce fresh monetary easing measures at the week’s policy meeting. As the session progressed the Euro was weakened by the release of weaker than forecast manufacturing PMI and unemployment data.

The Euro to Pound rate fell further after the data releases disappointed the markets. Unemployment in Germany rose unexpectedly last month and the Eurozone’s manufacturing output fell to its lowest level in seven months. Unemployment across the currency bloc also remained unchanged at 11.6% suggesting that the region’s recovery has faltered.

Sterling then strengthened broadly after a PMI report showed that the UK’s manufacturing sector roared back into life in June. The Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) rose to 57.5 in June from 57.0 in May - its highest level since November and beating expectations for a small fall. It also topped readings in other European countries.

On Thursday the Pound edged closer to the key 1.26 level against the single currency as the European Central Bank offered little in the way of surprises by keeping interest rates at the record low level of 0.15%. Following the bank’s policy meeting, Bank President Mario Draghi struck a rather dovish tone when asked questions by reporters. He said that low interest rates will remain for an extended period and suggested that the bank could still use other measures to reign in the threat from deflation.

EUR Falls vs GBP and USD on Data Release

The Euro fell to fresh lows against the Pound (EUR/GBP) and softened against the US Dollar (EUR/USD) after data release earlier in the morning showed that German factory orders fell more-than-expected in May as geopolitical concerns sapped confidence in the single currency.

Mr Draghi emphasized that "the governing council is also unanimous in its commitment to use unconventional instruments' if necessary, to address the risk of too-prolonged period of low inflation.”

As the week drew to a close the Pound was holding above the 1.26 level. On Friday the Euro softened further after a report showed that factory orders in the Eurozone’s largest economy of Germany fell more than expected.

Exchange Rate Forecasts for Next Week

Exchange rate forecasts see that the Pound could rise further against the Euro (GBP/EUR) next week as expectations are high that the upcoming manufacturing, industrial production and Bank of England policy meeting will offer support to the currency.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Daily Currency Updates Euro Forecasts