Bank of England’s Economic Optimism Shores up Pound Euro Exchange Rate
The Pound to Euro (GBP/EUR) exchange rate found fresh traction in the wake of the Bank of England’s (BoE) March policy announcement.
While the lack of change in monetary policy came as little surprise to investors the upgrade to the central bank’s economic outlook gave Pound Sterling (GBP) a solid boost.
With the BoE adopting a more upbeat view of the UK economy’s future GBP exchange rates were able to push higher, even with no interest rate rise looking likely for the foreseeable future.
As policymakers also suggested that Covid-19 restrictions may see a slightly more rapid relaxation than previously thought this gave investors plenty of reason to favour the Pound.
Sharp Narrowing of Eurozone Trade Surplus Weighs on Euro Exchange Rates
Although markets had anticipated a narrowing of the Eurozone trade surplus in January this was not enough to keep the Euro (EUR) from faltering.
As the headline trade surplus narrowed sharply from €29.4 billion to just €6.3 billion this offered fresh evidence of growing trade disruption facing the currency union.
With trade conditions looking set to weaken further over the course of the first quarter this weaker showing left the single currency vulnerable to selling pressure.
Even though the fourth quarter wage growth index showed solid improvement EUR exchange rates were unable to capitalise on this uptick.
Rising UK Consumer Confidence Forecast to Boost Pound Appeal
Further gains could greet the Pound to Euro exchange rate on Friday if the GfK consumer confidence index strengthens as expected for March.
If the index can rise from -23 to -20 this could give investors further incentive to pile into the Pound, with improving consumer sentiment likely to bolster the UK’s growth prospects.
As stronger levels of consumer spending have previously helped to shore up economic activity over the course of the pandemic any uptick here could offer GBP exchange rates a boost.
Even if the index remains trapped firmly in negative territory the Pound is likely to trend higher in response to signs that sentiment recovered some of its lost ground this month.
Euro Remains Vulnerable Ahead of Latest Eurozone Manufacturing and Services PMIs
On the other hand, the mood towards the Euro could remain volatile ahead of next week’s set of Eurozone manufacturing and services PMIs.
With forecasts pointing towards another weak month of activity for the service sector across the currency union the appeal of the single currency could weaken further.
Unless the service sector demonstrates evidence of increased resilience in the face of ongoing Covid-19 disruption worries over the risk of a first quarter growth contraction look set to rise.
However, another strong monthly performance from the manufacturing sector may help to offset any services PMI weakness and put pressure on the Pound to Euro exchange rate.