EUR/GBP Update: Euro to Pound Exchange Rate Static on Eurozone Budget Clash

June 26, 2018 – Written by Tim Boyer

On Monday, the Euro to Pound (EUR/GBP) exchange rate opened in the region of 0.8791 and closed higher at 0.8812.

This was mainly down to falling confidence in the Pound, given an apparent risk of Brexit uncertainty causing a migration of businesses out of the UK.

EUR/GBP Exchange Rate Tight on Signs of Disagreement over Common Eurozone Budget

The Euro (EUR) has traded in a narrow range against the Pound (GBP) today, following the news that there could be division among Eurozone nations over a common budget.

This was proposed by French President Emmanuel Macron and eventually backed by German Chancellor Angela Merkel, but the idea hasn’t had complete success elsewhere.

French Finance Minister Bruno Le Maire has taken a firm stance against possible opposition to the plans, saying:

‘A common budget is something that is not negotiable for France. There is a need for something to stabilize against an economic shock … to defend the status quo is to feed populism.’

Pound Sterling to Euro (GBP/EUR) Exchange Rate Static after BoE Policymaker’s Dovish Debut

The Pound (GBP) hasn’t made much progress against the Euro (EUR) today, with the GBP/EUR exchange rate holding close to opening levels.

This limited pairing movement is primarily because of concerns that beyond the next Bank of England (BoE) interest rate decision, there could be a more dovish composition of BoE policymakers.

To set the scene, BoE policymaker Ian McCafferty, who has historically backed higher interest rates at the UK central bank, will be leaving in September after voting for the last time in August this year.

His successor, Jonathan Haskel, has been speaking today but has worried GBP traders by taking a more cautious approach to the idea of interest rate hikes.

Mr Haskel has backed higher interest rates overall, but has questioned the pace of such increases:

‘Given current conditions and current economic data, I agree with the broad direction of travel [for interest rates].

‘[Still, the] first risk involved in raising interest rates would be if this is done too quickly, disturbing investment and borrowing plans by more than would have been expected.’

Following Mr Haskel’s remarks, ING’s Viraj Patel forecast that:

‘This doesn’t adjust the probabilities for an August [rate] hike but it certainly could mean that the composition of the Monetary Policy Committee (MPC) turns a bit more neutral going forth.

‘This may knock the top of some of the expectations for how far UK rates and the Pound can go.’

EUR/GBP Forecast: Will Euro to Pound Exchange Rate Decline on Falling Eurozone Confidence?

The next major Eurozone data to watch out for will come on Thursday morning, in the form of a range of economic confidence scores for June.

These readings are forecast to be disappointing across the board, with lower levels of business confidence, consumer confidence and economic sentiment all being predicted.

If these prove to be accurate forecasts then confidence in the Euro could drop, leading to a devaluation of the single currency.

The afternoon could prove similarly disappointing for Euro traders, who may be faced with an estimated decline in German inflation rates during June.

A slowing level of inflation rate growth in the Eurozone’s largest economy might mean that Eurozone-wide inflation also takes a dip.

The risk is that if the rate of price growth slows then the European Central Bank (ECB) might reconsider a potential interest rate hike next year, which has been years in the making as it is.

The next notable UK economic data will come sooner, in the form of Wednesday morning’s Bank of England (BoE) financial stability report release.

This will look at the strength of the UK economy at present, in addition to considering future risks to national economic stability.

If the report is optimistic in its summary and its outlook, then the Pound could rise sharply against the Euro tomorrow morning.

BoE Governor Mark Carney will also be speaking as the report comes out and could amplify any GBP gains if he also has high hopes for UK economic growth in the months ahead.

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TAGS: Euro Pound Forecasts