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Pound Euro (GBP/EUR) Exchange Rate Strengthened by BoE Rate Speculation

April 16, 2018 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate is trending higher today as markets focus on upcoming UK data and its possible impact on the Bank of England’s (BoE) monetary policy.

Pound (GBP) Buoyed by BoE rate Expectations

The Pound is pushing higher against the Euro this morning as expectations of an interest rate hike from the BoE next month helps to bolster the appeal of Sterling.

Markets are eyeing the release of some key UK economic data later this week latest wage growth and inflation figures later this month on expectations that they will seal the deal in regards to the BoE implementing a rate hike in May.

Marc Ostwald, global strategist at ADM Investor Services International in London, said;

‘With markets almost fully discounting a BOE rate hike, this week’s run of monthly indicators are anticipated to give the hike a green light.’

This BoE rate speculation is also helping to offset concerns over the UK’s participation in military strikes against Syria over the weekend in response to the Assad government alleged use of Chemical weapons in the rebel held city of Douma.

While Russian President Vladimir Putin has condemned the attack on its ally it is though that the Kremlin’s response to the strikes will be fairly limited, much to the relief of market who feared that global growth could be hamstrung by escalating tensions between Russia and the West.

Euro (EUR) Slides as Growth Prospects Weaken

At the same time the Euro continues to weaken this morning as analysts express concern that the momentum in the Eurozone may be stalling.

In a survey compiled by Bloomberg, economists have downgraded their growth forecasts for the Eurozone on both a quarterly and annual basis.

While analysts are not worried about a major slowdown of the bloc, the moderate pace of growth is a bit of a disappointed following the stellar growth seen last year.

Florian Hense, European economist at Berenberg Bank in London said;

‘The acceleration phase has clearly stopped and risks are to the downside. But this is not to be confused with a slowdown, the euro zone is on a firm growth phase and, if some these risks do not materialize, we could be in for a rebound in the summer.’

Further limiting the appeal of the Euro this morning was the release of Germany’s latest Wholesale price index.

According to data published by federal statistics agency, Destatis, wholesale price inflation held at 1.2% in March, falling short of expectations that it would tick up to 1.5%.

The lack of uptick in price pressure is likely to do little to bolster hopes of the ECB striking a more hawkish tone at its next policy meeting later this month.

GBP/EUR Forecast: Uptick in Wage Growth to Support Case for May Rate Hike?

Looking ahead the GBP/EUR exchange rate is likely to advance on Tuesday following the publication of the UK’s latest labour report.

Economists forecast that tomorrow’s data will show that while employment growth slowed in February, UK unemployment will have held at a 42-year low of 4.3%.

However it is likely to be the accompanying earning figures that prove to be the most impactful for the Pound as it is expected to surge from 2.8% to 3% over the same period.

A jump in wage growth would likely lend even more support for the BoE to raise interest rates in May and may even prompt some analysts to speculate on the possibility that the bank could target a second hike later in the year.

Meanwhile the Euro looks likely to suffer another setback tomorrow following the release of the Eurozone’s latest economic sentiment index.

The latest survey of economists is expected to show that their outlook for the Eurozone is becoming increasingly pessimistic, with the index forecast to slide from 13.4 to 7.3, its lowest levels in over a year.

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