Euro to Pound Exchange Rate Forecast: Are EUR/GBP Losses Incoming on Falling Eurozone Confidence?

April 19, 2018 - Written by James Fuller

STORY LINK Euro to Pound Exchange Rate Forecast: Are EUR/GBP Losses Incoming on Falling Eurozone Confidence?

On 18th April’s trading session, the Euro to Pound exchange rate (EUR/GBP) opened in the region of 0.8653 and rose to close higher around 0.8714.

This appreciation was primarily because the Pound tumbled in value during the day; the morning’s Eurozone data ended up missing forecasts.

In the former case, Sterling was significantly weakened early on by the news that the UK inflation rate fell to its slowest point in a year during March.

The decline from 2.7% to 2.5% was received negatively by Pound traders, who became concerned that if inflation continued to slow then the Bank of England (BoE) could hold off on a May interest rate hike.

This was a marked change of outlook compared to earlier in the week, when a Pound rally was predicted if inflation fell below the pace of wage growth.

In a similar situation, the Euro was also influenced by inflation rate data on 18th April.

In this instance, finalised Eurozone inflation rate levels rose in March, but not by as much as forecast.

Euro traders didn’t have an immediate positive reaction to the data, as unless inflation rates consistently rise to European Central Bank’s (ECB) 2% target range then an interest rate hike is less likely.

EUR/GBP Exchange Rate Drops as Sterling Recovery Worsens Euro to Pound Trading

While it has risen in value against most regular currency peers today, the Euro has made a minor decline against the stronger Pound.

This is mainly down to Sterling recovering from the morning’s disappointing sales data and there not being any high-impact Eurozone news to push the EUR/GBP exchange rate higher.

The Eurozone current account surplus rose in February compared to January, with the reading rising from 12.6bn to 22.7bn.

That said, the rise missed forecasts for a higher surplus figure of 27.2bn to be recorded. The current account is a large-scale measure of national trading performance, so a missed prediction today could have slightly lowered confidence among Euro traders.

Pound to Euro (GBP/EUR) Exchange Rate Rises despite UK Retail Sales Stats Missing Forecasts

On the other side of the pairing, despite a poor start to the day the Pound (GBP) has managed to bounce back against the Euro (EUR) and rise in the GBP/EUR pairing along with many others.

The Pound initially tumbled on 19th April, when it was reported that UK retail sales activity in March had fallen for both the monthly and year-on-year measures.

Looking at the silver lining of the news, however, Hargreaves Lansdown Senior Economist Ben Brettell said;

‘The UK consumer has been surprisingly resilient over the past few years, even in the face of economic uncertainty, and there looks to be some light at the end of the tunnel for those suffering a squeeze in household budgets.

‘If this marks a sustained period of rising real wages, it could bode well for the retail sector – provided any pay rises aren’t swallowed up by increased mortgage payments as a result of May’s likely interest rate rise’.

The Pound was additionally supported by the fact that the March sales slump was largely down to freak weather events, dismissed as ‘one-offs’.

EUR/GBP Forecast: Will Euro to Pound Exchange Rate Fall Further on Eurozone Confidence Drop?

The Euro to Pound exchange rate (EUR/GBP) could make additional losses before the weekend, when a Eurozone consumer confidence flash is announced on 20th April.

The estimate of changes to consumer sentiment levels is tipped to show a worsening of an already-bad reading, which could cause Euro to Pound losses before the weekend.

For Pound traders, there could be late-week GBP/EUR movement when Bank of England (BoE) officials Jon Cunliffe and Michael Saunders speak today and tomorrow, respectively.

Both policymakers could discuss the possibility of an interest rate hike in May; if it looks like a near-term rate hike is likely then the Pound to Euro exchange rate (GBP/EUR) could rise further before the weekend.

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TAGS: Euro Pound Forecasts