Will the ECB Turn Hawkish? Pound Sterling to Euro Exchange Rate (GBP/EUR) Under Pressure

GBP/EUR Exchange Rate: Hawkish BoE Comments Boost Pound

Comments from Bank of England (BoE) deputy governor David Ramsden encouraged a fresh bout of demand for the Pound last week.

As Ramsden sounded a more optimistic note regarding the UK outlook this helped to fuel speculation that the BoE will raise interest rates at its August policy meeting.

However, GBP exchange rates faltered on Wednesday thanks to an unexpectedly downbeat UK consumer price index reading.

With inflation holding at a one-year low the case for more aggressive BoE monetary policy tightening diminished, leaving the Pound on a sharp downtrend across the board.

Even so, if May’s UK retail sales figures show a solid improvement this could help to boost the Pound, suggesting that consumers are maintaining a more positive outlook.

GBP/USD Exchange Rate: Faltering UK Wage Growth Weighs on Pound Sterling Demand

Tuesday’s surprise weakening in UK average weekly earnings put additional downside pressure on GBP exchange rates.

Wage growth has remained a major factor in the BoE’s decision making in recent months, prompting investors to re-evaluate the odds of an August interest rate hike.

After the UK visible trade deficit unexpectedly widened in April this helped to drive fresh fears over Brexit, as the shape of the UK’s future trade relationship with the EU remains unclear.

Unless there are signs that UK and EU negotiators are moving towards an agreement on the subject of the Irish border the Pound looks set to maintain a bearish bias.

USD/GBP Exchange Rate: US Dollar Demand Limited Ahead of Federal Reserve Rate Decision

Rising tensions over trade between the US and its allies at the G7 summit left the US Dollar on a weaker footing at the start of the week.

Markets remain wary of the prospect of a full-blown trade war erupting as the Trump administration threatens to impose additional tariffs on Canada and the EU.

Although the US consumer price index strengthened from 2.5% to 2.8% in May as forecast, this failed to offer USD exchange rates any particular rallying point.

With the impact of a June Federal Reserve interest rate hike already effectively priced into the US Dollar, its upside potential looks limited in the near term.

If Fed policymakers show signs of committing to a more aggressive pace of interest rate hikes, though, this could give USD exchange rates a leg up.

EUR/USD Exchange Rate: Euro Shakes Off Signs of Underwhelming Second Quarter for German Economy

Recent German data continued to undermine confidence in the outlook of the Eurozone’s powerhouse economy, with signs pointing towards muted second quarter growth.

A sharp slump in the German trade surplus and contracting factory orders weighed heavily on demand for the Euro.

In spite of mounting tensions at the G7 summit, however, EUR exchange rates returned to a positive footing this week.

Investors remained confident ahead of the European Central Bank’s (ECB) June policy announcement, betting that the meeting will see discussion of the end of the long-running quantitative easing programme.

This leaves the Euro vulnerable to significant downside pressure if policymakers adopt a more dovish policy outlook instead, with commentary from ECB President Mario Draghi set to provoke fresh EUR volatility.

Hannah Wilson

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