EUR to GBP Exchange Rate Steadies after Slump, Movement Forecast Next Week
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Prior to this, the common currency was managing to adopt a stronger position against its British rival in spite of several disappointing economic reports for the Eurozone being published over the course of the week.
The Euro held its own on Monday even as Manufacturing PMI’s for Germany and the Eurozone were negatively revised, and the EUR/GBP exchange rate also proved its resilience on Wednesday as Services and Composite PMI measures for the Eurozone and its largest economies fell from previous estimates.
Even the Eurozone’s retail sales report disappointed expectations, showing a sales decline of -0.4% instead of the -0.3% drop economists had anticipated. On the year sales were up 0.8%, less than the 0.9% sales gain anticipated.
However, the Pound failed to capitalise on these disappointing figures as fears that the Scottish referendum might go in favour of anti-unionists weighed on the asset.
Sterling struggled against the majority of its currency counterparts over the course of the week, sliding against the US Dollar, Australian Dollar and Euro.
On Thursday the EUR/GBP pairing experienced a reversal of fortunes on Thursday as the European Central Bank took investors by surprise.
The central bank opted to cut the refinancing rate to 0.05% and push the deposit rate further into contraction territory, bringing it to -0.20%.
The ECB had another surprise up its sleeve as well and intimated that next month it will begin purchasing asset-backed securities.
In an accompanying statement ECB President Mario Draghi commented; ‘In August, we see a worsening of the medium-term inflation outlook, a downward movement in all indicators of inflation expectations. Most, if not all, the data we got in August on GDP and inflation showed that the recovery was losing momentum.’
The EUR/GBP exchange rate sank after the decision was announced and largely held declines overnight.
On Friday the Eurozone published its second quarter growth data. The figures showed stagnation on a quarter-on-quarter basis following growth of just 0.2% in the first quarter. It is hoped that the steps undertaken by the ECB will help the Eurozone recover its footing.
As stated by industry expert Nick Kounis; ‘The measures will have positive effects on the economic outlook. The package will likely put some further downward pressure on the Euro, which will give an impulse to economic growth and inflation. In addition it will help to improve bank lending.’
EUR/GBP Exchange Rate Forecast
Next week the Euro could extend declines against the Pound if the economic reports from the Eurozone fall short.
The data to be most aware of includes German trade figures, Eurozone investor confidence and, most importantly, the German Consumer Price Index for August.
If the pace of inflation in the Eurozone’s largest economy is shown to have slowed in August it would further justify the ECB’s decision and could push the EUR/GBP exchange rate lower.
Currently the Euro is trading against the Pound in the region of 0.8105 and is trading against the US Dollar in the region of 1.3631