EUR/GBP Exchange Rate Subdued as UK Data Impresses

March 9, 2018 - Written by John Cameron

STORY LINK EUR/GBP Exchange Rate Subdued as UK Data Impresses

The Euro Pound (EUR GBP) exchange rate is struggling to advance this morning following the release of the UK’s latest economic data.

Pound (GBP) Bolstered by UK Trade, Production Figures

The Pound is beginning to edge higher against the Euro this morning following the release of the UK’s latest trade and production figures.

According to data published by the Office for National Statistics (ONS) the UK’s trade deficit widened from -£2.4bn to -£3bn in January.

However given that December’s reading was revised down from -£4.8bn the results were still welcomed by GBP investors.

The accompanying production figures were also upbeat as industrial output was shown to have rebounded from -1.3% to 1.3% at the start of year, although fell slightly behind forecasts it would strike as high as 1.5%.

The uptick in factory production appeared to be largely driven by the repair of the Forties oil pipeline, with allowed crude to pump freely from the North Sea once again.

Ole Black, senior statistician at the ONS said;

‘Manufacturing has recorded its ninth consecutive month of growth but with a slower start to 2018. Total production output continues to advance, bolstered in January by the Forties oil pipeline coming back on stream after December’s shutdown.’

Euro (EUR) Muted in Wake of ECB Policy Meeting

The Euro meanwhile remains subdued this morning as markets continue to mull over the European Central Bank’s (ECB) latest rate decision.

There was considerable volatility in the Euro on Thursday as alongside its expected decision to leave rates unchanged in March the ECB altered a key part of its accompanying policy statement.

The part in question was the bank’s previous pledge to increase the rate of bond purchases if it felt that the Eurozone’s expansion was slowing.

The dropping of its easing bias had an immediate impact on the Euro, with the EUR exchange arte prompted to soar as it appeared that the ECB was taking steps towards normalising its monetary policy.

However the Euro was quickly brought crashing back down to ground following a press conference with ECB President Mario Draghi held shortly afterwards, in which he suggested that bank’s monetary policy would remain ‘reactive’ in light of subdued inflation within the Eurozone.

Ray Attrill, Head of FX Strategy at the National Australia Bank said;

‘The ECB, as expected, tweaked their policy guidance to drop the so called easing bias, meaning a willingness to increase the size and duration of the QE asset buying programme if necessary. But there was no guidance as to when the purchase programme would end or when rates might start to rise.

‘In itself this was not market moving, but Mario Draghi succeeded in talking the Euro — and Eurozone bond yields — down in his ensuing press conference.’

EUR/GBP Exchange Rate Forecast: Brexit Sentiment to Dominate Pairing?

Looking ahead to next week’s session, a lull in notable economic from both the UK and the Eurozone will likely see political uncertainty drive movement in the EUR/GBP exchange rate.

Brexit is unsurprising going be a major barometer for movement in the Pound, with a number of speeches in the run up to the second stage of talks later this month likely to be key to gauge what each side will be looking to accomplish through negotiations.

Meanwhile the current political deadlock in Italy following Sunday’s election is likely to become a key focus for EUR investors over the coming week.

It still remains unclear who is likely to attempt to form a new government, but analysts suggest that a coalition deal between the Five Star movement (M5S) and the Democratic Party (DP) looks most likely.

The idea of an M5S led government may prove especially disconcerting for investors given the party’s previous Euroscepticism, possibly weakening the Euro if they fear that it could cause friction within the EU.

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TAGS: Euro Pound Forecasts