Pound to Euro Exchange Rate Investors Anticipate European Central Bank (ECB) Tone
Due to mixed news in the UK and Eurozone over the past week, the Pound to Euro (GBP/EUR) exchange rate has not seen major moves so far this week. That could change if the European Central Bank (ECB) surprises investors on Thursday.
After tumbling from 1.1361 to 1.1206 last week, GBP/EUR has largely fluctuated near the week’s opening levels since Monday. GBP/EUR briefly dropped to a four-month-low of 1.1152 on Wednesday before trending near the week’s opening levels again.
Awaiting a bigger reason to buy or sell the Pound to Euro (GBP/EUR) exchange rate, investors are anticipating the European Central Bank (ECB) policy decision. The decision will be held in the early afternoon.
The bank is not expected to make any changes to monetary policy in its March policy decision, but investors will be more focused on the bank’s tone on outlook.
Some analysts speculate that the ECB will continue to hint that it will continue to withdraw its aggressive stimulus measures later this year.
However, others suggest that the bank has no need to rush, particularly if concerns remain that Eurozone inflation is still subdued. This kind of cautiousness is likely to make the Euro less appealing though.
Pound (GBP) Exchange Rates Mixed on Latest Brexit Disagreements
Uncertainty continues to dominate the Pound outlook this week, as disagreements between the UK government and EU stances on what kind of post-Brexit UK-EU deal should be possible have caused anxiety in markets.
Wednesday’s news was mixed enough to see the Pound dip and then strengthen again by the end of the day.
European Council President Donald Tusk issued negotiation guidelines to EU negotiators on Wednesday and the guidelines took a strict stance on Britain’s hopes for a bespoke post-Brexit deal with the bloc.
Tusk reasserted that Britain would not be able to simply choose which sectors it wished to have close ties to the EU with, as the UK has expressed it will not remain in a customs union or the EU single market.
However, later in the day UK Chancellor Philip Hammond attempted to offer reassurance that Tusk’s strict negotiation stance was unsurprising. Hammond still appeared confident that a deal for UK financial services in the EU could be negotiated, for example.
Pound to Euro (GBP/EUR) Forecast: Trade Results Due Friday
While Thursday’s European Central Bank (ECB) policy decision has the biggest potential to influence the Pound to Euro (GBP/EUR) exchange rate outlook this week, Friday’s UK and Eurozone data could also affect trade if it surprises.
Friday will see the publication of January trade balance data from Britain and Germany, as well as January production data from Britain and France.
Other UK ecostats due on Friday, including construction output and NIESR’s UK Gross Domestic Product (GDP) estimate for February, could also influence Sterling slightly before markets close for the week.
However, in terms of the mid to longer-term GBP/EUR outlook, this data is unlikely to be hugely influential.
Looking ahead, Pound investors are likely to remain focused on developments in Brexit discussions. Signs that the UK and EU can overcome negotiation obstacles or that a post-Brexit transition period can be agreed would make the Pound more appealing.
As for the Euro, the European Central Bank outlook as well as any developments with Italy’s hung parliament could influence the shared currency.