GBP/EUR Forecast: Halifax House Price Slump and Weak PMIs Quash BoE Hike Expectations, Pound Euro Exchange Rate Sinks

GBP/EUR Exchange Rate Slumps, BoE Rate Hike Odds Erased by Weak PMI Data

The Pound Euro (GBP/EUR) exchange rate continued to fall back during last week’s session as the pairing was undermined by the release of some underwhelming UK PMI figures.

This PMI data saw both the manufacturing and service sectors expand at an anaemic pace in April, with analysts suggesting the UK could be in for another weak quarter of growth.

On top of this Sterling (GBP) was further weakened as the lacklustre PMI data also appeared to completely eliminate any hopes the Bank of England (BoE) could still vote to raise interest rates this month.

Meanwhile the Euro’s (EUR) advance last week was not without its hurdles, with a dip in the Eurozone’s first quarter GDP and slowing inflation both tempering the single currency’s gains last week.

Pound Euro (GBP/EUR) Exchange Rate Weakened by Rebound in German Factory Output

After striking higher at the start of the week’s session the Pound Euro (GBP/EUR) exchange rate finds itself on the back foot again this morning following the publication of Germany’s latest Industrial production figures.

According to data published by Germany’s Federal Statistics Office, Destatis, domestic industrial production surged by 1% in March after contracting 1.7% the previous month.

The jump in output beat forecasts of a 0.8% rise and helped to alleviate concerns the Eurozone’s largest economy may have seen a significant slowdown in the first quarter of 2018.

However, some analysts warn Germany’s industrial sector may not be out of the woods just yet, with Unicredit economist Andreas Rees suggesting:

‘Maybe this is just a blip in the first quarter, but this weaker performance could also continue in spring.’

Sterling (GBP) Exchange Rate Edges Lower as UK House Prices Slump

At the same time the Pound (GBP) exchange rate is struggling this morning following the release of some gloomy house price figures.

Halifax reports this morning that UK house price growth slumped from 1.6% to -3.1% in April, falling well below the modest 0.2% contraction that was forecast.

However despite the faster-than-expected drop last month, analysts at Halifax appeared sanguine about the figures, with Russell Galley, Managing Director at Halifax, forecasting the recent uptick in wage growth will help to fuel price growth in the coming months.

GBP/EUR Exchange Rate Forecast: ECB Rate Decision in Focus

Looking to the week ahead, the main source of movement in the GBP/EUR exchange rate is likely to be the BoE’s rate decision on Thursday.

With a rate hike appearing to be no longer on the table, the focus will now be on the bank’s outlook for the remainder of 2018, with the Pound (GBP) exchange rate likely to strengthen if policymakers strike a hawkish tone, as some analysts expect.

Valtteri Ahti, Chief Strategist at Denmark’s Danske Bank, said:

‘We think a rate hike will be postponed to the next big meeting in August. In this sense, it is going to be a hawkish hold given the relatively subdued market pricing of future BoE rate hikes.’

Meanwhile the Euro (EUR) could fall back later this week as economists forecast France’s industrial production figures will show domestic factory output slowed in March.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail