Daily Currency Update: GBP/EUR Exchange Rate Flat after Spring Statement Assessment

March 14, 2018 - Written by James Fuller

STORY LINK Daily Currency Update: GBP/EUR Exchange Rate Flat after Spring Statement Assessment

On 13th March, the Pound to Euro exchange rate opened and closed at roughly the same rate.

The GBP/EUR pairing opened daily trading in the region of 1.1272 on Tuesday morning and despite midday movement ended in the same position in the evening.

Sterling was most strongly influenced by the spring statement, an economic summary delivered by Chancellor Philip Hammond.

GBP/EUR Exchange Rate Close as IFS Blasts UK Growth

The Pound has made little overall movement against the Euro on 14th March, following the release of the 2018 spring statement.

UK Chancellor Philip Hammond was broadly optimistic about how the UK economy could improve in the future, but others took a more sceptical stance.

Among those was the Institute for Fiscal Studies (IFS), which observed that the UK is in a chronic slump in terms of GDP growth.

Criticising the cautious optimism displayed in the spring statement, IFS Director Paul Johnson said;

‘Dismal productivity growth, dismal earnings growth and dismal economic growth are not just part of the history of the last decade, they appear to be the new normal’.

EUR/GBP Exchange Rate Movement Limited by Cautious Draghi Speech

Although the Euro has had the right conditions to advance against the Pound today, it has failed to do so because of cautious remarks from European Central Bank (ECB) President Mario Draghi.

A highly influential policymaker, Mr Draghi has stressed that ECB monetary policy tightening may be some way off if inflation fails to pick up.

Highlighting the ECB’s focus on inflation and wage growth movement, Mr Draghi said;

‘There is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2% over the medium term.

The performance of underlying inflation remains subdued compared with previous recoveries.

The key issues we need to examine are wage dynamics, their pass-through to prices, and the possible risks to the inflation outlook’.

The implication is that if Eurozone inflation fails to show consistent growth then all bets may be off when it comes to imminent ECB interest rate hikes.

GBP/EUR Exchange Rate Forecast: Is Pound to Euro Volatility ahead on UK Inflation Data?

The rest of the current week won’t bring much UK economic data, so before the weekend Eurozone news could be the greater influencer on the GBP/EUR exchange rate.

Eurozone inflation rate data will come out on the morning of 16th March, although the Euro may end up falling if the reading prints as predicted.

Year-on-year inflation, which is considered the more important reading, is tipped to show a decline from 1.3% to 1.2% for the finalised February result.

An anticipated month-on-month rise from -0.9% to 0.2% might not be enough to push the Euro up against the Pound, given how focused Euro traders are on inflation rate readings.

Next week, the Euro will have a starting advantage against the Pound when Eurozone trade balance and construction output data is released.

Expectations are for a slight reduction in the Eurozone trade surplus, but a rise in construction output from 0.5% to 1.5%.

The Eurozone will retain a healthy trade surplus in either event, so if construction output levels rise as predicted then the Euro could firm against the Pound.

On the other side of the currency pairing, the Pound could turn volatile against the Euro on 20th and 21st March when UK inflation and jobs data will be released.

UK year-on-year inflation levels are tipped to have fallen in February; such results could push the Pound higher as this would improve conditions for households across the country.

Although lower inflation might reduce the chances of a Bank of England (BoE) interest rate hike, policymakers are not predicted to take immediate action.

This may mean that the short-term benefit of lower inflation outweighs the potential for a longer-term loss.

Another cluster of UK data will come on 21st March, covering UK unemployment and average earnings.

The GBP/EUR exchange rate could rise if unemployment drops to 4.3% as predicted, but if earnings slow then any Sterling gains could be limited.

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TAGS: Pound Euro Forecasts