Pound to Euro Exchange Rate Forecast: GBP/EUR Could Fall Further if Wednesday’s UK Data Disappoints

Update: Pound to Euro Exchange Rate Sheds Weekly Gains as Trade Developments Support Euro

Market hopes that the US and China would work to avoid a potential ‘trade war’ bolstered market demand for the Euro (EUR) on Tuesday afternoon.

On top of this, after a brief GBP/EUR rally to its best levels in nine months in the morning, the pair rebounded and was sold from its highs.

Investors ultimately saw little reason to continue buying the Pound (GBP) despite hawkish comments from Bank of England (BoE) policymaker Ian McCafferty.

This is because markets were already confident in the likelihood of a May interest rate hike from the BoE.

Pound to Euro Exchange Rate Hits Nine-Month-High as BoE Rate Hike Bets Firm

Thanks to solid UK housing data on Monday and hawkish hints from Bank of England (BoE) policymakers on Tuesday, the Pound to Euro (GBP/EUR) exchange rate touched on its best level since June 2017 on Tuesday morning.

GBP/EUR may be on track for another week of gains. Last week saw GBP/EUR gain almost a cent and rise from the interbank level of 1.13 to 1.14. On Tuesday, the pair briefly touched above the key level of 1.15.

Demand for the Pound (GBP) has been solid this week and this has helped it to more easily strengthen against the Euro (EUR).

Sterling has been bolstered as comments from Bank of England (BoE) officials have left investors more confident that it is preparing to hike UK interest rates again as soon as May.

BoE policymaker Ian McCafferty argued in an interview on Tuesday that the next UK interest rate hike should not be delayed further.

While McCafferty is already among the bank’s more hawkish members, his comments still bolstered BoE interest rate hike bets.

Pound (GBP) Exchange Rates Supported by UK Data and BoE Hopes

While typically low-influence, Monday’s UK house price index figures from Halifax were impressive enough to bolster market confidence that Britain’s economy would be able to cope with tighter monetary policy.

Month-on-month house prices jumped from 0.5% to 1.5%; well above the expected slip to 0.2%. Yearly house prices rose from 1.8% to 2.7%, beating the forecast 2.1%.

As UK housing prices have been a concern since the Brexit vote in 2016, the rebound in March was reassuring to investors. It also helped markets overlook last week’s underwhelming UK PMI results.

As a result of firming BoE interest rate hike bets, the Pound has seen solid performance so far this week.

Bank of England chief economist Andy Haldane held a speech on Tuesday in which he outlined why he believed the in benefits of low interest rates, saying the policy had not caused any notable downside impact on Pound trade.

Euro (EUR) Exchange Rates Fail to Find Support in Eurozone Data

Recent Eurozone data has done little to bolster demand for the Euro, as it has either met expectations or fallen short.

Last week’s Eurozone PMI stats indicated that the Eurozone economy’s strong growth of 2017 was slowing quicker than expected.

Monday’s German trade results from February revealed that Germany saw one of its worst starts to New Year trade in years, with both imports and exports falling well short of forecasts.

The news made investors more concerned about the recent protectionist rhetoric from the US, especially as German trade may be negatively impacted by increased tariffs.

Pound to Euro Forecast: BoE Bets Could Keep GBP/EUR Trade Resilient

It may take a lot to push the Pound to Euro (GBP/EUR) exchange rate lower in the coming days, as the Pound remains appealing due to bets that the Bank of England (BoE) will hike UK interest rates next month.

If Wednesday’s UK trade or production data is notably disappointing, it could weigh on the perceived chance of a May interest rate hike from the BoE, but if data meets or beats expectations then the Pound will remain strong.

Demand for the Euro could be influenced by Eurozone stats due for publication towards the end of the week.

Thursday will see the publication of Eurozone industrial production stats from February, as well as France’s final March Consumer Price Index (CPI) results.

Final March inflation figures for Germany and Spain will be published on Friday.

If any of these inflation figures beat expectations, it could boost hawkish European Central Bank (ECB) speculation. Germany’s results are likely to be particularly influential.

Of course, if US trade tariff uncertainty persists, the Euro’s strength will be limited.

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