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The Pound-to-Euro Exchange Rate Outlook: Up to €1.103 as GBP Traders Await Today's UK Inflation

September 11, 2017 - Written by James Fuller

The pound to euro exchange rate has continued to rise on Tuesday 12th September, quoted at £1 = €1.10321 ahead of today's key sterling-related risk event: the UK inflation.

Will GBP/EUR extend its recent uptrend or see a reversal? In their latest brief to clients Lloyds note key levels to watch:

"As we head into today’s inflation data, the cross [EUR/GBP] is approaching important support in the 0.9050/40 region. Momentum is still down, so a clear break of this area would suggest a broader correction is in play. However, from a medium-term perspective we would need to breakdown through the 0.8850-0.8800 region to confirm a significant peak developed at 0.9306 for a move back towards medium-term range supports in the 0.8400-0.8250 region. Resistance today lies at 0.9145-0.9200. A move back through there would suggest a return to channel highs."

Last week saw the British Pound gradually appreciate against the Euro, opening trading at a rate of 1.0910 and closing at 1.0967 on Friday.

GBP EUR Exchange Rate Rises despite Brexit Vote Uncertainty

The Pound’s advance against the Euro today comes despite continued uncertainty about the state of affairs in Parliament, where a key vote on Brexit is due to take place.

One of the primary concerns about the vote on the EU repeal bill is that it will enable a government ‘power grab’ of rights currently enjoyed by the devolved nations.

Attempting to downplay concerns of this nature has been Ken Clarke, a veteran pro-EU Conservative who has previously held high-ranking positions in the party. Clarke stated that;

‘We have been reassured they are not going to use these powers in any policy-making way...parliament would be sensible to get them to write it so they are not giving themselves the possibility of using powers that no government has ever tried to take at the expense of parliament before’.

Euro Slips as ECB Official Presses ‘Wait and See’ Attitude

The Euro has dipped against the Pound today, owing to continued uncertainty about the timing of European Central Bank (ECB) monetary policy tightening.

Speaking earlier today, ECB official Benoit Coeure stressed that the central bank was not likely to dive into rigorous monetary policy changes, which makes near-term tightening an unlikely prospect.

This followed a statement last week from ECB President Mario Draghi, who stressed that economists should wait until October for major ECB announcements.

GBP EUR Weekly Forecast: Pound Volatility likely on BoE Interest Rate Decision

The Pound could turn turbulent against the Euro this week, with high-impact UK data releases and political developments coming at a steady pace.

These will start off immediately with tonight’s vote on the EU repeal bill. The bill is designed to transfer EU laws over to the UK, but has been denounced as a ‘power grab’ by some opponents.

In the event that the bill is rejected in tonight’s House of Commons vote, the Pound could drop sharply. While a rejection may not be a vote for ‘chaotic Brexit’ as Brexit Secretary David Davis has warned, it would still be yet another delay in the exit process, which has already been stalled in recent weeks.

On Tuesday, the Pound will be affected by UK inflation rate figures in the morning. For the annual rate in August, a rise is forecast from 2.6% to 2.8%.

It remains unclear how traders could react to such news, given what it might mean for future Bank of England (BoE) monetary policy. Higher inflation would put more pressure on the BoE to raise UK interest rates, but the central bank has so-far resisted any impetus.

This is despite inflation exceeding the BoE’s target range of 2%, which has been the situation since February 2017.

Crucially, the inflation rate figures will be compared to Wednesday’s average earnings stats; these are tipped to show growth, but not on par with the rate of inflation.

A still-present gap will mean that the UK wage squeeze continues, which can have negative knock-on effects for UK consumer spending and, ultimately, GDP.

With unemployment forecast to remain static on Wednesday, the only other major news will be jobless claims results for August. Claimants are projected to rise on the month, which would be negative news for the UK.

All of this news is building up to the main event on Thursday – September’s Bank of England (BoE) interest rate decision. The BoE is not expected to change interest rates, but may still cause major GBP gains if three or more policymakers vote for higher rates.

Weekly Eurozone news will primarily focus on the overall currency bloc, with Wednesday bringing a look at Q2 employment and industrial production in July.

No significant change in employment is forecast but as production is tipped to rise, the Euro could appreciate regardless.

Further ahead, a cluster of speeches from European Central Bank (ECB) officials are incoming over Thursday and Friday, while the Eurozone trade balance will also come out on Friday. For the former speeches, any signs that monetary policy could tighten in the future might strengthen the Euro, ahead of October’s supposedly momentous ECB meeting.

The overall trade balance is tipped to see a surplus reduction, which might temper the Euro at the end of the week.
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