Pound to Euro Exchange Rate Forecast: Could Upcoming Eurozone Data Push GBP/EUR Even Lower?

Update: Pound to Euro Exchange Rate Edges Away from Lows Following Mixed Eurozone Ecostats

While the Pound to Euro (GBP/EUR) exchange rate hit its worst levels in over a month on Monday morning, the pair trended edged away from its worst levels in the afternoon.

Monday’s Eurozone inflation stats were largely disappointing, with Italian inflation falling short of forecasts in both prints in April.

While Germany’s April inflation rate was slightly better than expected, the harmonised inflation rate projections fell short of forecasts which also weighed on the Euro.

Still, any GBP/EUR gains were modest at best and the pair still trended near the interbank level of 1.13 at the time of writing.

Pound to Euro Exchange Rate Limp Following Friday’s UK GDP Shocker

Following the publication of disappointing UK data in recent weeks, Bank of England (BoE) interest rate hike bets have fallen and the Pound to Euro (GBP/EUR) exchange rate has plunged.

The latest fall was last Friday. Friday saw GBP/EUR trending near an interbank high of €1.15, but the pair shed over a cent following Britain’s growth projections and ended the week near a low of €1.13.

On Monday morning, GBP/EUR was continuing to trend near its lowest interbank level since mid-March, with investors increasingly betting the BoE will leave monetary policy frozen in May after all.

Previously, investors had hoped that the BoE could still hike UK interest rates in May but Friday’s disappointing UK Gross Domestic Product (GDP) Q1 projections really dampened market confidence in Britain’s economic outlook.

UK growth was forecast to slow slightly from 0.4% to 0.3% quarter-on-quarter but instead slumped to just 0.1%. At the same time, the yearly growth rate was expected to remain at 1.4% but the projection came in at just 1.2%.

Pound (GBP) Pressured by UK Economic Outlook and Political Uncertainties

Investors had been hoping that Britain’s economy would remain resilient in the face of the Brexit process, and that the economy would be able to withstand tighter monetary policy over the next year.

However, the latest UK ecostats have indicated that British growth was slowing even more than anticipated. To analysts, this has reduced the likelihood of there being higher UK interest rates any time soon.

According to Steve Barrow, G-10 currency strategist at Standard Bank:

‘Sterling looks vulnerable against most currencies … We knew that growth was slowing down and we found out that it’s more than anticipated.’

On top of this, Band of England Governor Mark Carney has recently sounded a more cautious tone towards monetary policy. This indicated to investors that Carney was not committed to a May rate hike and would continue to observe the data and Brexit developments.

Following the UK growth report, bets of a May interest rate hike from the Bank of England (BoE) fell to just one-in-five.

Furthermore, UK political news has kept pressure on Sterling (GBP) so far this week. Over the weekend, UK Home Secretary Amber Rudd resigned from her role amid a leaked letter in relation to the Windrush scandal.

Euro (EUR) Exchange Rates Supported as Eurozone Confidence Remains Solid

While last week’s European Central Bank (ECB) policy decision was lacking in surprises and ECB President Mario Draghi maintained a cautious tone, the Euro (EUR) has nevertheless been able to gain against Sterling.

Eurozone data has been mixed, but despite the bloc’s solid 2017 growth slowing more than expected in recent months, data indicates that consumers are still generally confident.

Friday saw the publication of the Eurozone’s final April consumer confidence results. Rather than contracting at -0.1 as projected, the figure unexpectedly rose from 0.1 to 0.4%.

Industrial and economic sentiment prints both beat forecasts, rising to 7.1 and 112.7 respectively.

While Eurozone services sentiment was weaker than expected and slipped to just 14.9, even Eurozone business confidence was stronger than forecast in April, beating the forecast 1.27 and only slipping from 1.44 to 1.35.

Monday’s Eurozone data did little to help the Euro climb further though. German retail sales were mixed in March, and Italy’s April inflation projections fell short of forecasts in both major prints.

Pound to Euro (GBP/EUR) Forecast: Major Ecostats throughout the Week

A slew of Eurozone data will be published this week, and if much of it impresses the Pound to Euro (GBP/EUR) exchange rate could be in for another week of losses.

With Bank of England (BoE) interest rate hike bets falling, and on top of political uncertainty in Britain, it could take a lot for the Pound to recover some of its recent falls.

UK manufacturing PMI data for April will be published on Tuesday, but Thursday’s UK services PMI is much more likely to be influential. This is because services make up the overwhelming majority of Britain’s economic output.

If UK services data considerably beats expectations, it could boost market hopes that Britain’s economy could perform better in Q2 compared to Q1. This may bolster BoE interest rate hike bets slightly again.

The week’s Eurozone data could be even more influential if it surprises investors.

Major Eurozone unemployment and growth data will be published on Wednesday, followed by inflation data on Thursday and retail sales stats on Friday.

While a slew of strong Eurozone data could push the Pound to Euro (GBP/EUR) exchange rate even lower, weak Eurozone data could worsen the Eurozone economic outlook and make a potential recovery easier.

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