Euro to Pound Exchange Rate Jumps as Bank of England Cuts UK Growth Outlook
After a dovish shift from European Central Bank (ECB) President Mario Draghi earlier in the week led to brief Euro (EUR) selloff, the Euro to Pound Sterling (EUR/GBP) exchange rate rebounded from those lows yesterday in response to Bank of England (BoE) news.
Since opening this week at the interbank level of 0.89, EUR/GBP has seen mixed movement as investors respond to Central Bank news.
EUR/GBP briefly surged to its best levels since January earlier in the week before plunging, and touching on a weekly low of 0.88 before rebounding and trending closer to the week’s opening levels again.
There wasn’t much in the way of fresh news supporting the Euro yesterday. Instead, the shared currency simply benefitted from weakness in its rivals, as the Pound (GBP) and US Dollar (USD) were both sold on Central Bank developments.
Euro (EUR) Exchange Rates Rebound as Rivals Hit by Central Bank News
Despite a lack of solid fresh support for the Euro (EUR) yesterday, it generally climbed versus its major rivals like the Pound (GBP) and US Dollar (USD) due to the latest major Central Bank developments.
Both the Bank of England (BoE) and Federal Reserve surprised investors with relatively dovish tones on monetary policy.
While European Central Bank (ECB) President Mario Draghi has also been dovish this week, the ECB’s shift in tone was not hugely surprising to investors and the Euro’s losses were limited. This meant that the Euro rebounded on the weakness of rival currencies yesterday.
Still, the Euro’s potential for recovery was limited throughout the day.
There was little domestic reason to buy the shared currency, and the latest Eurozone consumer confidence projections for June came in with a deeper than expected contraction.
Eurozone consumer confidence was forecast to print -6.5 once again, but the figure instead deepened to -7.2.
Pound (GBP) Exchange Rates Fall as Bank of England (BoE) Chops UK Growth Outlook
For most of the week, the Pound (GBP) has been unappealing due to rising concerns that a no-deal Brexit could become more likely under Britain’s next Prime Minister.
With the UK Conservative Party leadership election still ongoing, it appears increasingly likely that Brexiteer Boris Johnson will become Prime Minister Theresa May’s successor by the end of July.
Sterling then briefly recovered from its worst levels against a weaker Euro (EUR), but yesterday’s Bank of England (BoE) policy decision pressured investors to sell the British currency again.
Investors had been predicting that unlike other major Central Banks, the BoE would remain relatively hawkish and continue to signal that interest rate hikes were more likely than a rate cut.
However, while the bank did do this as expected, it also cut its UK Q2 2019 growth forecast to a concerning 0.0%.
Some investors even speculated that despite the bank’s claims that rates could be hiked, an interest rate cut could be necessary.
Euro to Pound (EUR/GBP) Exchange Rate Investors Await Key Eurozone Data
The Euro to Pound (EUR/GBP) exchange rate’s rebound has been limited as there has been no solid domestic support for the Euro (EUR) this week, and investors are hesitant to sell the Pound (GBP) much lower.
With investors speculating on looser European Central Bank (ECB) monetary policy due to weakness in Eurozone economic activity, upcoming Eurozone data could be most likely to influence the Euro’s movement if it surprises investors.
As today’s UK public sector net borrowing report is unlikely to be hugely notable, investors will be focused on the day’s slew of Eurozone PMI projections.
Markit’s June PMI projections for the Eurozone will be published throughout the morning.
As Germany is the Eurozone’s biggest economy and investors have been concerned about the resilience of Germany’s economy in recent months, the German PMI projections could be particularly influential.
German manufacturing is expected to see yet another concerning month, with the PMI estimated to have only edged higher from 44.3 to 44.5, still remaining in the region of contraction below 50.0. This could keep pressure on the Euro.
If the Eurozone PMI data influences ECB monetary policy bets at all, the Euro to Pound Sterling (EUR/GBP) exchange rate could see a late-week shift in movement.