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GBP to EUR Exchange Rate Sold from Highs as Bank of England (BoE) Speculation Cools

September 19, 2017 - Written by Toni Johnson

September’s Bank of England (BoE) meeting minutes and following speeches from BoE policymakers helped the British Pound to Euro exchange rate to surge, but the BoE Governor, Mark Carney, has since taken a more cautious stance again.

Last week saw GBP/EUR surge from 1.0963 to around 1.1377 due to BoE news. The pair briefly touched on a two-month-high of 1.1390. Since yesterday however, the pair has slipped and currently trends below the level of 1.13.

GBP Slips on Bank of England (BoE) Uncertainties


While markets are still speculating that the Bank of England (BoE) could hike UK interest rates within the next few months, the level of bullish speculation has dropped in recent sessions.

BoE Governor Mark Carney took a more cautious tone when he spoke at the International Monetary Fund (IMF) on Monday.

He issued fresh warnings on how the Brexit process could impact the UK economy, as well as indicated that any policy adjustment from the BoE was likely to be gradual and limited.

This lessened the impact of the hawkish comments made last Friday by Gertjan Vlieghe. Vlieghe indicated that the bank may need to hike rates to higher than they had been before 2016’s rate cut.

Chris Beauchamp, chief market analyst at IG, commented on Tuesday’s Sterling weakness;

‘Yesterday’s speech from Mark Carney, while broadly reiterating the shift in tone from last week, failed to add much more to the overall picture…
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Investors still clearly feel that the Bank of England is hedging its bets, and while the change from the summer’s ‘lower for longer’ outlook has changed markedly, the fact that we have been here before is causing many to hold back and refrain’


Some of the more bullish economist predictions, such as for multiple UK interest rate hikes in the coming months, have faded as a result of Carney’s latest comments.

EUR Sturdy on Economic Sentiment Results


As Sterling has weakened in recent sessions, this has helped the Euro to recover from its recent lows. The latest Eurozone data also bolstered support for the shared currency.

ZEW’s Eurozone economic sentiment survey for September edged higher from 29.3 to 31.7. While this fell short of 32.4 forecasts, Germany’s stats were comparatively more impressive.

Germany’s current conditions report advanced from 86.7 to 87.9, beating 86.6 forecasts. The German economic sentiment index jumped from 10 to 17, above the expected 12.5.

Economists from ZEW noted that the results were evidence that investors were not particularly worried about the recent strength of the Euro.

This was good news for Euro hawks, as the European Central Bank (ECB) has recently warned that a strong Euro could have a negative impact on Eurozone exports.

The report also indicated that markets were generally calm about Germany’s upcoming federal election, due to take place this coming Sunday. Angela Merkel, Germany’s Chancellor, is widely expected to win another term.

As Monday’s Eurozone inflation report met expectations, the data likely had no notable impact on the ECB’s policy outlook and investors brushed over the results.

GBP/EUR Forecast: UK Retail Sales Data Ahead


The Pound to Euro exchange rate is likely to be influenced by data in the coming days.

As the Bank of England (BoE) has indicated that the strength of Britain’s economy will play a big part in the interest rate outlook, Wednesday’s UK retail sales results from August could influence Sterling demand.

UK retail sales are forecast to have slowed from 1.3% to 1.1% year-on-year and from 0.3% to 0.2% month-on-month.

If the report beats expectations, GBP/EUR could advance again. Strong retail data would indicate that UK citizens are resilient despite the current UK pay squeeze. Of course, poor retail stats would indicate the opposite.

Friday’s session is also likely to be influential, for both Pound and Euro trade.

An anticipated Brexit speech from UK Prime Minister Theresa May could impact the Pound outlook, while Euro traders may react to September’s preliminary Eurozone PMIs from Markit.
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