EUR to GBP Exchange Rate Remains Under Pressure as Eurozone Factory Data Disappoints

September 12, 2018 – Written by Minesh Chaudhari

Bank of England (BoE) uncertainties and some strong Eurozone data on Tuesday helped the Euro to British Pound (EUR/GBP) exchange rate to edge away from weekly lows briefly, but on Wednesday some disappointing Eurozone factory stats left the pair trending near its worst levels in a month again.

After opening this week at the level of 0.8945, EUR/GBP was knocked around half a penny lower on Monday. A Tuesday recovery attempt was short-lived, as EUR/GBP slipped again and touched a low of 0.8889 on Wednesday morning. This was the lowest EUR/GBP level since the beginning of August.

EUR Struggles to Recover as Eurozone Industrial Production Sees Contractions

The Euro’s movement has been fairly limited so far this week, seeing slightly stronger demand on the back of some solid employment data and stronger than expected economic sentiment survey stats from September, but weighed by continued US-EU trade fears.

So Tuesday’s Eurozone data briefly helped the Euro to edge higher versus the Pound, but on Wednesday the Eurozone’s disappointing industrial production stats weighed on the shared currency’s appeal.

Eurozone industrial production was forecast to have lightened from -0.7% to -0.5% month-on-month in July, but instead the previous figure was revised lower to -0.8% and the July figure came in at -0.8% too.

Perhaps even worse was the yearly figure, which was forecast to slide from 2.5% to 1.0% in July but instead surprised with a contraction of -0.1%. The previous figure was revised lower to 2.3%.

The data worsened concerns that, at least in July, the Eurozone’s economic activity was worse-affected by US-EU trade jitters than analysts expected. This has weighed on the Eurozone’s 2018 economic outlook.

As a result of the day’s underwhelming Eurozone data, the shared currency was also unable to benefit from fairly bullish comments from European Commission President Jean-Claude Juncker.

Juncker said he wished to promote the Euro as a global reserve currency that could rival the US Dollar. The news slightly bolstered market confidence in the Euro’s stability.

GBP Supported by Brexit Hopes and Anticipation for Bank of England (BoE) Decision

Pound movement has remained fairly steady since Monday, when EU Chief Negotiator Michel Barnier said he believed it would be ‘realistic’ to expect a UK-EU Brexit deal to be reached within the next eight weeks.

Barnier’s comments continued to support the Pound on Wednesday, even after Tuesday’s underwhelming Bank of England (BoE) news.

Investors sold the Pound slightly on Tuesday, in reaction to news that BoE Governor Mark Carney’s term at the helm of the bank would only be extended for seven months.

Markets had been betting that Carney’s term could be extended until late-2020 or even 2021, so the shorter extension was a slight disappointment for Pound investors.

Signs of continuity and consistency in the Bank of England outlook are Pound positive, so a longer term for Carney, especially through the Brexit process, would improve the Pound outlook.

Pound investors are now anticipating developments from the Bank of England’s monetary policy outlook, now that Carney’s extended term has been confirmed.

As the Brexit process will formally take place next year, analysts do not expect the bank to be particularly hawkish unless the process goes surprisingly smoothly.

EUR/GBP Forecast: Central Bank Policy Decisions in Focus

The Euro to Pound exchange rate could still see some late-week movement, as Thursday is set to be the most influential session of the week in terms of news.

The European Central Bank (ECB) and Bank of England (BoE) will both be holding September monetary policy decisions.

While no changes in policy are expected from the bank, investors highly anticipate the ECB’s stances on US-EU trade uncertainties, and the Bank of England’s views on Brexit negotiations and the stability of Britain’s economic outlook.

According to analysts from JPMorgan Chase & Co, political developments are likely to remain in focus for the Pound too, particularly amid the possibility that domestic political obstacles still potentially posing a threat to the UK government’s Brexit plan:

‘Domestic politics should dominate the BoE and data over the coming weeks with the annual Labour and Conservative party conferences.’

On top of Central Bank news and political developments though, some notable Eurozone data could influence the Euro to Pound exchange rate towards the end of the week.

Key German and French inflation figures from August will be published on Thursday, followed by the Eurozone’s July trade balance and Q2 wage growth figures on Friday.

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TAGS: Euro Pound Forecasts