Trump Trade Fears Cause Pound to Euro Exchange Rate to Slip from Highs as Euro Recovers
UPDATE 15:28 BST: The Euro (EUR) recovered from its worst levels on Friday afternoon as the latest global trade jitters left the shared currency more appealing.
Demand for the US Dollar (USD) weakened when the US President Donald Trump announced new trade tariff action against China, making it easier for the Euro to recover.
Despite this, the Pound Sterling to Euro (GBP/EUR) exchange rate continued to trend in the interbank region of 1.14 at the timed of writing and was on track to sustain gains this week.
Pound to Euro Exchange Rate Slips from Highs Following Thursday’s Surge
Perceived caution over Eurozone growth and global trade helped the Pound Sterling to Euro (GBP/EUR) exchange rate to soar on Thursday, as the Euro (EUR) saw broad losses. Sterling benefitted from the day’s UK retail sales results.
GBP/EUR spent most of the week trending in the interbank region of €1.13, and trended near weekly lows up until Thursday’s session. Following the European Central Bank’s (ECB) June policy decision, GBP/EUR surged to its best level in almost a month – €1.14.
On Friday morning, GBP/EUR slipped slightly from its best levels as investors digested the Central Bank’s news. The pair continues to trend in the interbank region of €1.14, however.
The Pound (GBP) outlook and Britain’s economic outlook in general have not considerably improved despite the solid retail sales results. Sterling will likely need stronger domestic support if it is to keep rallying against a weaker Euro.
Pound to Euro exchange rate traders now await next week’s trade session, when the Bank of England (BoE) will hold its June policy decision and give markets an update on Britain’s economic outlook.
Pound (GBP) Exchange Rate Investors Await Bank of England (BoE) Following Retail Results
Sterling’s gains versus the Euro (GBP/EUR) were bolstered by stronger domestic sentiment, as May’s UK retail sales results printed well above expectations on Thursday.
UK retail sales were forecast to have fallen from 1.6% to 0.5% month-on-month, but instead only slipped from a revised 1.8% to 1.3%.
The yearly figure was particularly strong, surging from 1.4% to 3.9% rather than the forecast 2.4%.
Analysts noted that the surge in retail sales was likely due to sunnier weather in the UK, and the royal wedding event.
However, some analysts expressed concern that there were no signs underlying consumer activity was getting stronger. This caused some to predict that May’s strong reading could just be a blip, rather than necessarily improving Britain’s economic outlook.
Euro (EUR) Exchange Rates Plummet after European Central Bank Caution
The European Central Bank’s (ECB) insistence that Eurozone interest rates would be kept frozen until mid-2019 at the earliest was a big disappointment to some bullish investors, causing the Euro (EUR) to plummet against Sterling (GBP) and other majors on Thursday.
While the bank confirmed that its aggressive quantitative easing (QE) bond-buying scheme would conclude by December, investors hoping for more hawkishness from the bank were disappointed by the monetary policy outlook and the bank’s lower growth forecasts.
The bank’s caution on interest rates was not a surprise to some analysts or investors, but ECB President Mario Draghi did highlight slowing Eurozone growth and concerns about global trade jitters.
According to Junichi Ishikawa from IG Securities in Tokyo, the Euro’s sharp movements were combined with reactions to the Federal Reserve’s decision the day before:
‘The Euro showed such a big reaction to the ECB meeting as its stance came in sharp contrast to the Federal Reserve, which had struck a hawkish tone just the day before,
Instead of reacting immediately to the Fed, many in the market had opted to first see out the ECB meeting, considered the main event of the week. And they duly reacted,’
Pound to Euro (GBP/EUR) Forecast: Investors Anticipating Bank of England (BoE) Decision
While Britain’s retail sales results beat forecasts on Thursday, UK wage and inflation stats disappointed earlier in the week.
The figures remain above the Bank of England’s (BoE) targets, but some analysts predict that price pressures are too subdued and will fall further in the coming months.
Concerns that disappointing UK data could continue to dampen the Bank of England’s eagerness to tighten monetary policy this year have put a lid on Sterling strength.
Essentially, investors are highly anticipating next Thursday’s BoE policy decision, because even though the bank is not expected to change monetary policy this month, any change in tone on the economic outlook will be vital.
If the bank indicates that Britain’s economic outlook has worsened, the Pound outlook would dampen and GBP/EUR could shed some of its recent gains.
On top of BoE developments, Eurozone consumer confidence and Markit’s June PMI projections for the bloc could influence movement in the Pound to Euro (GBP/EUR) exchange rate.