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Euro to Pound Exchange Rate Update: EUR/GBP Rate Declines on US Tariff Concerns

March 12, 2018 - Written by James Fuller

Over the previous week’s trading, the Euro to Pound exchange rate made a minor decline compared to opening and closing trading levels.

The EUR/GBP exchange rate opened in the region of 0.8936 on Monday morning, but later closed around 0.8884 on Friday afternoon.

Last week’s most significant Eurozone data showed improving retail sales and retail PMI activity, but slowing quarter-on-quarter GDP growth in Q4 2017.

The European Central Bank (ECB) held its monthly interest rate decision meeting on 8th March, but left rates untouched at 0%.

The central bank took a strong step towards tapering off and halting quantitative easing (QE), but the meeting was very much ‘plan’ instead of ‘action’.

ECB policymakers had previously been poised to increase QE when necessary, but have now dropped this commitment.

While the ECB is still expected to take a slow and steady approach to winding up its QE program, the meeting was nonetheless seen as a step towards this eventual outcome.

The ECB’s day was not all positive, however – ECB President Mario Draghi issued a warning against US plans to implement trading tariffs by saying;

‘Unilateral decisions are dangerous. If you put tariffs against your allies you wonder who your enemies are’.

In the UK, notable economic news included signs of growth in the services sector during February, along with a less supportive reduction in the trade balance for January.

Construction came into the spotlight on Friday, when it was revealed that construction output and orders had fallen sharply over the previous months.

Commenting on the data, Construction Products Association Senior Economist Rebecca Larkin said;

‘After three quarters of decline last year, it appears that 2018 is unlikely to herald a resurgence in industry growth.

The fall in activity in January is likely to have been worsened by any pause on projects due to the liquidation of Carillion in the middle of the month.

The snow disruption in February and March adds to the downside forces on construction during the opening quarter of the new year.

The news from the new orders data in 2017 Q4 did little to improve the mood.

Although the headline 25.0% quarterly fall was reflective of the spike caused by the award of HS2 contracts in the previous quarter, outside of infrastructure, new orders declined in all sectors, including a 2.3% fall in private housing, which has previously been a strong driver of construction growth’.

Euro to Pound Exchange Rate Slips on Metal Tariff Concerns among Eurozone Producers

With talk of a trade war with the US growing, the Euro has lost ground against the US Dollar.

While countries such as Canada, Mexico and Australia appear to have secured exemptions, the Eurozone and wider EU seem to be firm targets of the punitive metal importing charges.

Elsewhere in the Eurozone, last week’s signs of ECB monetary policy tightening have been put on hold after comments from ECB board member Benoit Coeure.

Mr Coeure has warned against immediate adjustment to the ECB’s monetary policy, stating;

‘It is very clear to us that short term interest rates, the ones that are controlled by the central bank, will remain at very low levels, far beyond the horizon of our asset purchases.

Inflation is not quite where we would like it to be’.

Pound to Euro Exchange Rate Advances despite Spring Statement Uncertainty

There has been little direct UK economic news out today, so the Pound has instead appreciated because of background optimism about 13th March’s Spring Statement.

The economic summary, delivered by Chancellor Philip Hammond, will look at UK economic movement over the previous months, in addition to offering a brief forecast for the future.

Although some believe that Mr Hammond may give a cautious verdict on the UK’s economic health, others are expecting something more optimistic from the Chancellor.

Euro to Pound Exchange Rate Forecast: Will EUR/GBP Losses Come from Lower Production Levels?

The week’s first major Eurozone data will be out on 14th March, consisting of the employment change reading for Q4 2017 as well as industrial production data for January.

Industrial output levels are predicted to have fallen on the quarter and the year in January, which may mean that the Euro slides against the Pound on such results.

This week may be quieter for Pound traders, who will only have Tuesday’s Spring Statement to refer to.

Chancellor Philip Hammond isn’t expected to unveil any surprises during the brief event, so greater focus may turn to the Office for Budget Responsibility (OBR) forecasts.

The OBR previously had a negative outlook at the time of the 2017 Autumn Budget - if these predictions are upgraded then the Pound to Euro exchange rate could rise.
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