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Pound Euro Exchange Rate News: GBP/EUR Trades Sideways as EU Inflation Data Meets Predictions

July 16, 2021 - Written by John Cameron

Euro (EUR) Struggles to Rally on Positive EU Inflation Data

Despite positive EU inflation data, the Euro (EUR) has struggled to find support this morning as analysts remain bullish on the Euro’s trading partners. A persistent buying bias in the US Dollar has weighed upon the single currency, alongside shrinking German yields.

This morning’s Eurozone inflation data for June hit targets exactly, supplying reassurance without impressing markets too much. In contrast with hawkish comments from The BoE and Federal Reserve, the European Central Bank has maintained a dovish stance, reporting that the central bank will preserve sustainable financial conditions and ‘that now it's not the right time to talk about an exit strategy.’

Asymmetric economic recovery across the EU also stunts the Euro’s progress as different regions report growing coronavirus cases and inconsistent vaccination rollouts. The covid Delta variant continues to wreak havoc, with the Netherlands, Spain, Portugal, Luxembourg, Cyprus and parts of Greece and Denmark recently added to the list of high-risk countries.

Pound (GBP) Gains are Limited as Coronavirus Worries Stoked by Experts’ Fears

The Pound (GBP) is trading level with the Euro (EUR) this morning as bullish sentiment over higher-than-expected UK inflation is muted by fresh coronavirus worries.

The UK’s Chief Medical Officer, Chris Whitty, reiterated this morning that the number of people in hospital with COVID-19 is doubling around every three weeks and could hit ‘quite scary numbers’.

This has limited the optimism of GBP investors, who’d previously been encouraged by hawkish comments from the Bank of England (BoE) regarding tapering.

While analysts retain a positive stance towards UK monetary policy, fears that the 19 July reopening may not proceed as planned have dimmed the Pound’s trading outlook.

Prime Minister Boris Johnson has conveyed a mixed message ahead of ‘Freedom Day’, calling for ‘extreme caution’ despite lifting legal requirements on mask-wearing in public.

According to a leading news source:

‘The Prime Minister called on companies to stagger their transition back to office work throughout the summer, while guidance issued moments later stated that people should limit their contact with others outside of their households.’

GBP/EUR Exchange Rate Forecast: Hawkish Fed and BoE to Support GBP?

Looking ahead to next week, movement in the Pound to Euro (GBP/EUR) exchange rate looks to be driven by the Bank of England’s (BoE) forward guidance in addition to German PPI data. The ECB’s interest rate decision next Thursday also has potential to direct movement, while US Dollar dynamics will undoubtedly have an effect on the Euro’s performance.

Economists are optimistic that the BoE will soon announce a monetary policy review, a prospect encouraged by yesterday’s announcement from MPC member Michael Saunders. Overriding previous dovishness from the central bank, Saunders suggested that if the economy continues on its current path then the central bank may need to begin tapering bond purchases ‘fairly soon’.

Yet Saunders’ remarks could be dampened further if coronavirus fears are escalated next week. ‘Freedom Day’ is likely to provoke concerns across the board if restrictions are widely abandoned, against government advice.

The European Central Bank is expected to leave interest rates at 0%, playing it safe while European businesses continue to suffer in the aftermath of the virus.
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