Surprise Dovish Shift from BoE Policymaker Fuels Euro Pound (EUR/GBP) Exchange Rate Gains
A marked shift in the Bank of England’s (BoE) policy outlook helped to drive a fresh Euro to Pound Sterling (EUR/GBP) exchange rate rally this morning.
Comments from BoE policymaker Michael Saunders saw Pound Sterling (GBP) fall sharply out of favour as he noted that ‘it is quite plausible that the next move in Bank Rate would be down rather than up’.
As Saunders indicated that he sees a prolonged period of Brexit uncertainty as more likely investors rushed to price in the impact of a potential interest rate cut.
While it remains to be seen whether Saunders’ outlook is shared by other members of the Monetary Policy Committee (MPC) the prospect of a more dovish BoE still weighed heavily on GBP exchange rates.
Euro Shakes off Underwhelming German and French Inflation Data
Although August’s German import price index figures fell further into contraction this failed to knock the EUR/GBP exchange rate off its bullish trend.
While signs continue to point towards a lacklustre level of inflationary pressure within the Eurozone’s powerhouse economy the Euro (EUR) was able to hold onto a positive footing.
As markets already see high odds of the European Central Bank (ECB) enacting further monetary loosening before the end of the year the data’s impact on the single currency proved limited.
Disappointing French consumer price index data also failed to put a dampener on the EUR/GBP exchange rate ahead of the weekend.
Slowing German Retail Sales May Halt EUR/GBP Exchange Rate Gains
Fresh weakness may be in store for the Euro on Monday, however, if German retail sales also fall short of forecast.
Evidence of a wider slowdown within the German economy could drag on EUR exchange rates, given existing worries over the potential for a third quarter growth contraction.
As long as markets see reason to bet on the possibility of Germany falling into a technical recession demand for the single currency looks set to weaken.
On the other hand, higher levels of retail sales could help to encourage hopes that the Eurozone’s powerhouse economy could still deliver a positive quarter of growth.
If retail sales can rebound from July’s sharp -2.2% decline this could see the EUR/GBP exchange rate extending its recent gains.
Signs of Weak UK Growth Forecast to Keep Pound on the Back Foot
While no change is forecast from the finalised second quarter UK gross domestic product this could still weigh on GBP exchange rates.
Confirmation that the economy struggled throughout the first half of the year would offer investors fresh incentive to sell out of the softened Pound.
The release of the latest set of UK PMIs may also leave the Pound biased to the downside in the week ahead.
Unless the manufacturing and service sectors demonstrate a solid improvement in September worries over the underlying health of the economy are likely to increase, to the detriment of GBP exchange rates.