Pound to Euro Exchange Rate Forecast: GBP/EUR Could Fall on Friday if Eurozone Data Continues to Impress

Update: Pound to Euro Exchange Rate Investors Await Key Data and Brexit Developments Next Week

Following an impressive Gross Domestic Product (GDP) report from Ireland, the Pound to Euro (GBP/EUR) exchange rate slipped slightly from its weekly highs on Thursday.

Irish growth was forecast to slow from 4.2% to 2.6% quarter-on-quarter in Q4 2017, but instead only slipped to 3.2%, while the previous figure was revised higher to 4.8%.

The yearly growth rate slowed from 10.9% to 8.4%.

While this did not notably influence Euro (EUR) movement, it left the shared currency slightly stronger. The Euro could see a stronger recovery on Friday if Eurozone inflation impresses.

Pound to Euro Exchange Rate Strength Could Be Limited until Next Week’s Brexit Developments

Brexit uncertainties and a cloudy UK economic outlook have prevented the Pound to Euro (GBP/EUR) exchange rate from advancing much this week, despite dovish European Central Bank (ECB) comments weighing on the Euro (EUR).

GBP/EUR could be in for another week of gains. The pair opened the week at the interbank level of 1.12 and touched on a March high of 1.13 during Thursday morning trade. GBP/EUR is more likely to hold these highs if the Euro remains weak.

However, amid a lack of substantive reasons to buy the Pound (GBP) ahead of next week’s key UK news, the Pound to Euro (GBP/EUR) exchange rate’s strength has been curtailed.

Investors are anticipating the EU summit, which will run from the 22 to the 24 March next week. The UK government expects to reach an agreement with the EU on a post-Brexit transition period.

Pound (GBP) Exchange Rates Pressured by Brexit Uncertainties

The optimism of the UK Treasury in the 2018 Spring Statement earlier this week was largely overshadowed by persistent market uncertainties about how Britain’s economy will be impacted in the coming years by the Brexit process.

With just over a year until Britain is set to leave the EU and still no trade or transition period agreements reached, the Pound has been broadly unappealing.

The independent watchdog, the Office for Budget Responsibility (OBR), took a gloomy stance on Britain’s economic outlook following the Spring Statement and noted that things had not notably improved since last November’s Budget.

City economists were also unimpressed by the Spring Statement, believing that Britain’s slow growth outlook was cause for more alarm than the Treasury had given it.

Euro (EUR) Weakened as European Central Bank (ECB) Officials Maintain Dovish Stance

Euro hawks hoping for the European Central Bank (ECB) to tighten monetary policy sometime soon have had their hopes dashed over the past week or so.

ECB President Mario Draghi was able to put a dovish spin on the bank’s monetary policy statement last week, and on Wednesday he continued with the depressed rhetoric which left the Euro less appealing.

Draghi asserted that the ECB was not in a hurry to end its bond buying programme, and would only do so when the bank was satisfied that Eurozone price pressures are more sustained. He said:

‘There is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim,’

With this week’s Eurozone inflation data so far printing close to expectations, it still seems as though there is little reason for Draghi to take a more hawkish stance soon either.

While France’s month-on-month inflation rate came in at 0.0% rather than the forecast -0.1%, this was not enough to impress investors.

Pound to Euro (GBP/EUR) Forecast: Inflation and Brexit Developments in Focus

The Pound to Euro (GBP/EUR) exchange rate could still see a shift in direction before markets close this week if Friday’s Eurozone inflation data surprises investors.

Friday will see the publication of the Eurozone’s final February Consumer Price Index (CPI) results. Eurozone inflation is forecast to have improved from -0.9% to 0.2% month-on-month but have slipped from 1.3% to 1.2% year-on-year.

The yearly core inflation figure is expected to remain at 1%.

Other inflation figures from Eurozone nations this week have been largely unsurprising. If the Eurozone’s February inflation figures beat expectations the Euro will strengthen on speculation that inflation is becoming more sustained at a quicker-than-expected rate.

Next week will be a busy one for Pound trade. UK inflation data from February will be published on Tuesday, but the biggest event will be the EU summit from the 22nd to the 24th.

If the UK government successfully reaches a Brexit transition period agreement with the EU, a major factor of Brexit uncertainty will be out of the equation and the Pound is likely to advance.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard