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Policymaker Commentary Hampers Euro

Yesterday’s high: €1.1129

Yesterday’s low: €1.1005

GBP/EUR Rallies as UK Inflation Surprises to Upside

European Central Bank (ECB) Vice President Vítor Constâncio adopted a rather dovish tone on monetary policy in comments on Tuesday.

This added to speculation that the central bank will not return to a more hawkish outlook any time in the near future.

As Constâncio indicated that monetary policy may need to remain accommodative for some time to come, this undermined hopes that the ECB could begin to taper its quantitative easing program imminently.

With centrist French President Emmanuel Macron also facing the first public demonstrations over his proposed labour reforms, the mood towards the Euro remained muted.

Confidence in the Pound, on the other hand, strengthened considerably in the wake of August’s UK consumer price index data.

Markets were encouraged by the news that inflation had accelerated from 2.6% to 2.9% on the year, climbing further away from the Bank of England’s (BoE) target rate.

This prompted renewed speculation over the possibility of the BoE voting to raise interest rates before the end of the year, setting the Pound on a bullish run across the board.

While this increase does not bode well for UK households, the GBP/EUR exchange rate still rallied to a six-week high.

Euro Outlook: Rising Industrial Production to Counteract ECB Dovishness

Support could be in store for the Euro today, however, as Eurozone industrial production is forecast to have strengthened in July.

A solid increase in production volumes could boost confidence in the underlying health of the Eurozone economy, giving markets fresh incentive to buy into the single currency.

Any disappointment, though, may weigh heavily on EUR exchange rates as this would likely add to the dovishness of ECB policymakers.

The GBP/EUR exchange rate could come under pressure, however, if the latest raft of UK labour market data fails to encourage investors.

Although growth in average weekly earnings is expected to have picked up to 2.3% in the three months to July, this would still be far from enough to reverse the ongoing pay squeeze.

A weaker showing could put significant pressure on the Pound.

Key Events

13th September

09:30 UK Average Weekly Earnings

10:00 Eurozone Industrial Production

 

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David Worthington

Currency Dealer

T: (0)1442 892 079

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