Pound Euro (GBP/EUR) Exchange Rate Trends Narrowly Ahead of Spring Statement
As anticipation mounted for Chancellor Philip Hammond’s first spring statementthis trapped the Pound to Euro (GBP/EUR) exchange rate in a narrow range.
No new policy measures are likely at this juncture, with focus instead falling on the Office for Budget Responsibility’s (OBR) revised economic forecasts.
Markets expect to see some upward revision of the OBR’s growth forecast, which could boost confidence in the domestic outlook and encourage greater demand for the Pound (GBP).
However, as Viraj Patel, research analyst at ING, commented:
‘For today, the attention shifts to the Chancellor’s Spring Statement – where we’ve led with the title ‘Spring Budget Break’ given that we may get some good news in the form of small adjustments to the OBR’s projections, namely a narrower budget deficit for 2017/18 and perhaps an upward revision to the 2018 UK GDP growth rate (1.5% current). The former – as well as the prospect of lower debt issuance in 2018/19 – is widely expected and hence we would expect any positive impact in gilt and GBP markets to be fairly short-lived.’
Unless the OBR proves more confident than anticipated the GBP/EUR exchange rate may struggle to make any particularly strong gains in the near term.
Trade War Concerns Forecast to Limit Euro Exchange Rate Upside
While yesterday’s Eurogroup meeting ended on a positive note for Greece the ultimate impact on the GBP/EUR exchange rate proved rather limited.
Even with the next disbursement of loans expected to come later this month, and with Greece looking on course to successfully exit its bailout program before the end of the year, the upside potential of the Euro (EUR) was muted.
Lingering concerns over the economic outlook of the currency union are keeping something of a lid on EUR exchange rates, given the Trump administration’s increasingly belligerent approach to trade.
If the US follows through on threats to impose fresh tariffs on European cars, and continues to focus fire on the size of the German trade surplus, the appeal of the single currency could deteriorate further.
A trade war with the US would not help the Eurozone economy to maintain its recent bullish momentum in 2018, especially if domestic politics continue to worry investors.
GBP/EUR Exchange Rate Gains Forecast on Dovish ECB Commentary
In the absence of any fresh UK data over the course of the week support for the GBP/EUR exchange rate could prove fleeting at best.
Demand for the Euro, meanwhile, may come under fresh pressure in response to the latest commentary from European Central Bank (ECB) policymakers.
If President Mario Draghi and his fellow policymakers continue to adopt a more dovish stance on the subject of monetary policy this should limit the scope for any EUR exchange rate gains this week.
The finalised German and Eurozone consumer price index figures for February are unlikely to provoke any particular volatility, on the other hand, as both are forecast to confirm a dip in inflationary pressure.
This should limit the downside potential of the GBP/EUR exchange rate, unless there are significant developments surrounding the matter of Brexit.