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EUR to GBP Exchange Rate Avoids Significant Losses amid Latest European Central Bank (ECB) Speculation

July 2, 2019 - Written by Ben Hughes

Mixed movement in both the Euro and Pound has left the Euro to British Pound (EUR/GBP) exchange rate fluctuating broadly this week so far. Investors are hesitant to keep selling the pair despite its high levels though, as European Central Bank (ECB) speculation keeps the Euro buoyed and the latest UK data and Brexit speculation keeps pressure on the Pound.

Despite trending close to its best levels in months, EUR/GBP saw yet another week of gains last week. EUR/GBP edged higher from 0.8941 to around 0.8955 throughout the week and briefly touched on a post-January high of 0.8986 on Friday.

This week’s movement has seen less solid direction so far as EUR/GBP has fluctuated between highs of 0.8977 and lows of 0.8922.

At the time of writing, EUR/GBP trended closer to the level of 0.8940 after another day of fluctuation. Investors were selling the Pound on Brexit jitters while the Euro found support in ECB speculation.

EUR Exchange Rates Avoid Losses as European Central Bank (ECB) Interest Rate Cut Bets Delayed

Since markets opened this week, the Euro has seen mixed movement as investors digest the latest shifts in the Eurozone outlook and the Euro’s rivals.

For example, investors sold the Euro yesterday in reaction to stronger demand for the US Dollar (USD), which shares a negative correlation with the Euro.

Investors bought the Euro versus a weaker Pound this morning, but the latest European Central Bank (ECB) speculation left investors selling the shared currency later in the day and its gains versus the Pound were limited.

Bets that the ECB could cut Eurozone interest rates as soon as July reached around 50%, before rumours emerged suggesting that the ECB officials saw no reason to rush in cutting interest rates.

As a result of the speculation, investors pulled back slightly on July interest rate cut bets, but analysts still predicted that there would likely be an interest rate cut by September 2019.

According to David Powell and Maeva Cousin from Bloomberg:

‘We forecast the ECB will change the wording of its forward guidance at the July meeting to signal an easing bias. We expect the deposit rate to be lowered by 10 basis points in September.’

The news only had limited upside impact on the Euro as ECB interest rate cut bets persisted overall. Germany’s May retail sales results also came in mixed this morning, ultimately making investors hesitant to move too much on the Euro today.

GBP Exchange Rates Unappealing on Bank of England (BoE) Comments and No-Deal Brexit Fears

Much of the Pound’s recent upside potential has been simply due to the risk that investors will want to buy the British currency back up from its cheapest levels in profit taking. There hasn’t actually been any notable Pound support in economic or political news.

Investors remain highly anxious that a no-deal Brexit would become more likely under Britain’s next Prime Minister, who analysts believe is likely to be Brexiteer Boris Johnson.

No-deal Brexit fears are dominating the market’s outlook of the Conservative Party leadership contest, and are having an increasingly notable impact on UK economic data as well.

This week’s UK manufacturing and construction PMIs printed deeper contractions than expected.

Today’s construction data was especially concerning, printing a shocking contraction of 43.1 which marked the print’s worst figure in around a decade.

It led some analysts to speculate that Britain may be headed towards recession. According to Professor Costas Milas from Liverpool University:

‘Divisia money and policy uncertainty developments point to GDP growth of 1.44% per annum for 2019Q2 (which is lower than the 1.59% estimate produced by the Bank of England in May) and zero quarter-on-quarter growth for 2019Q2. So, fingers tightly crossed, we might avoid recession....’

On top of this, Bank of England (BoE) Governor Mark Carney appeared to edge away from his typically optimistic tone in a speech today, expressing concern that a trade war and a no-deal Brexit were becoming more possible.

EUR/GBP Exchange Rate Forecast: Eurozone Data to Drive European Central Bank (ECB) Bets

For now, investors are pulling back slightly on bets that the European Central Bank (ECB) will cut Eurozone interest rates as soon as this month, but the possibility remains.

European Central Bank monetary policy bets are likely to be influenced by key Eurozone data, meaning there could still be plenty for Euro to Pound investors to react to this week.

Tomorrow will see the publication of the Eurozone’s final June services and composite PMI results.

As manufacturing PMIs fell short of projections on Monday, these could cause ECB interest rate cut bets to rise if they disappoint.

Even more key data will be published towards the end of the week as well. The Eurozone’s May retail sales stats will come in on Thursday, with German factory orders data due on Friday.

With multiple key Eurozone ecostats due over the coming sessions and ECB monetary policy speculation in focus, these are most likely to drive EUR/GBP.

However, as disappointing UK manufacturing and construction data has worsened the Pound outlook this week, some surprising UK services data tomorrow could also influence the Euro to Pound exchange rate.
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