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GBP/EUR Exchange Rate Rises 0.5% as European Central Bank (ECB) Accounts Devalue Euro

April 12, 2018 - Written by Toni Johnson

On Wednesday, the Pound to Euro exchange rate fluctuated but ultimately closed down slightly lower than its opening level.

The GBP/EUR exchange rate opened in the region of 1.1470 on Wednesday morning, later falling to a marginally lower range of 1.1467 by the evening.

The day’s UK data was negative for the most part, showing among other things a decline in month-on-month manufacturing and industrial output levels.

Additionally, it was reported that compared to February 2017, UK construction output had fallen by -3% during the same month in 2018.

The afternoon closed off with another concerning data release from the National Institute for Economic and Social Research (NIESR), which estimated that UK GDP growth for Q1 2018 could be 0.2%.

This prediction came with a caveat from NIESR Head of UK Macroeconomics Amit Kara, who suggested that the snowstorms of March might make the finalised reading even worse;

‘Take for example the quarterly GDP growth for the final quarter of 2010 when the UK experienced a prolonged period of extreme cold weather.

The economy was initially estimated to have shrunk by 0.5% but subsequent data revisions show that the economy expanded by 0.1% over this period’.

The good news was that the UK trade balance for February showed a much larger-than-expected deficit reduction from £-2.949bn to £-0.965bn, instead of the anticipated £-2.6bn reading.

Despite the shift, this result failed to make the Pound the stronger currency in the GBP/EUR exchange rate.

Yesterday’s Eurozone data was only slightly supportive of the single currency – Italian retail sales in February were reported to have improved for the monthly and annual readings.

GBP/EUR Exchange Rate Rises despite UK Growth Warnings

The Pound to Euro exchange rate has risen considerably today, although for the most part this is down to a weakening Euro.

Recent UK news has not been especially supportive, consisting of warnings about future levels of economic growth.

The most recent has come after the National Institute for Economic and Social Research (NIESR) released its cautious growth forecast, as detailed above.

In a follow-up to the news, Guardian Economics Editor Larry Elliott has given an additional warnings about the potential for more disappointing UK growth from here on out;

‘It is obvious that the economy has lost momentum in recent months. Last year’s story was of weaker but better-balanced growth, with consumer spending muted by industry doing well. This year’s story, so far, has been weaker growth, pure and simple.

There are reasons factory output has stalled. Sterling has been rising on the foreign exchanges as the markets have started to bet against a cliff-edge Brexit.

That makes exports more expensive at a time when demand from the rest of Europe has faltered. After years of underinvestment, it is also the case that manufacturing has lacked the capacity to meet rising demand’.

EUR/GBP Exchange Rate Tumbles as ECB Accounts Reveal Cautious Majority

The Euro’s -0.5% drop against the Pound today comes after the release of the European Central Bank’s (ECB) accounts from its last monetary policy meeting.

The overriding message from the accounts was that ECB policymakers remain extremely reluctant to adjust monetary policy, which means that interest rate changes are likely a long way off.

Key words from the accounts include ‘patient’, ‘persistence’ and ‘prudence’, which all but confirm that there may be no significant policy changes for the foreseeable future.

ECB policymakers are still unconvinced that Eurozone inflation rates will accelerate to their 2% target range anytime soon, which has left the Euro an unappealing prospect at present.

Pound to Euro Exchange Rate Forecast: Risk of GBP/EUR Losses ahead on Jobs and Inflation Data

The Pound’s fluctuating movement against the Euro this week could turn to more consistent losses in the week ahead, when UK average earnings, unemployment and wages data is released.

The first of these high-impact readings will come out on 17th April, when average earnings data and unemployment rate stats for February will be released.

Respectively, forecasts are for the jobless rate to rise from 4.3% to 4.4%, while average earnings growth with bonuses is tipped to slow from 2.8% to 2.6%.

Additionally, March’s inflation rate figures are expected to show a year-on-year increase from 2.7% to 2.8%.

If all of these data releases print as expected then the Pound to Euro exchange rate could see a sharp fall, due to the implications of slowing earnings and higher inflation.

There was previously optimism among GBP traders when it looked like the pace of wage growth might overtake the rate of inflation, so signs of a reversal might lower confidence.

As long as the pace of wage growth remains below the level of inflation then UK consumers will be subject to wage squeeze conditions, which can have a negative impact on spending and ultimately GDP growth.

More immediately than next week's UK jobs data, the Euro could see movement when Eurozone inflation and trade balance data is released on 13th April.

Current estimates are for Germany’s finalised inflation rate reading for March to show growth in most fields, which may raise confidence among Euro traders.

An additional forecast-matching expansion of the current Eurozone trade surplus could act as another positive influence on the Euro, resulting in a late-week EUR/GBP exchange rate rise.
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