ExchangeRates.org.uk - At the time of writing, GBP/EUR was trading at €1.1896, virtually unchanged from Monday’s opening level. The Pound (GBP) was subdued on Monday as a notable lack of UK economic data left the British currency to trade without a clear direction. In addition, GBP investors seemed hesitant to place any aggressive bets ahead of the UK’s upcoming consumer price index, due to be released on Wednesday, as well as other high-impact UK data later in the week. After Sterling’s impressive rally last week – thanks in part to surprisingly hawkish comments from two Bank of England (BoE) policymakers – GBP investors were on Monday far more cautious. The possibility that Wednesday’s CPI could reveal a cooldown in inflation, which in turn could tip the BoE towards an August rate cut, kept GBP subdued. This was reinforced by comments from BoE policymaker Swati Dhingra, who said that ‘now is the time’ to start cutting interest rates. However, as Dhingra is known as one of the most dovish voices on the BoE’s Monetary Policy Committee, her comments did not have a strong effect on Sterling.
Euro (EUR) Muted on Mixed Production Data
Meanwhile, the Euro (EUR) was also muted following lacklustre Eurozone economic data. Eurozone industrial production contracted by 0.6% in May, pointing to the worst month for output in the bloc since January. However, the decline was not as bad as the 1% contraction that economists had expected. In addition, there were some positive developments – production of energy and non-durable consumer goods both increased. This mixed result saw the single currency trade in a narrow range. Ongoing political uncertainty in France could also have muted the Euro. The initial relief that the far-right National Rally (RN) party did not win the election has long since faded. Now, EUR investors are concerned that the three major political forces – the RN, the left-wing New Popular Front (NFP), and President Emmanual Macron’s centrist alliance – will be unable to form a coalition government. The resulting uncertainty and fears of political deadlock in the Eurozone’s second-largest economy stifled the Euro’s potential.
GBP/EUR Exchange Rate Forecast: High-Impact Events to Drive Volatility
Looking ahead, Pound Euro exchange rate could see heightened volatility as the week progresses amid some important data releases and big events. The first key release will be Germany’s ZEW economic sentiment index. Morale in the Eurozone’s largest economy is expected to have deteriorated this month, which could pile some pressure on the Euro. Attention may then shift to the UK’s upcoming consumer price index. Signs of stubborn inflation could fuel bets that the British central bank may want to wait before cutting interest rates. However, if we see price pressures cool further then fresh bets on an August rate cut could see Sterling slump. As the week unfolds, we also have the UK’s latest labour market report. An expected cooldown in British wage growth could spark GBP selling if it is seen as increasing the likelihood that the Bank of England will start unwinding its monetary policy next month. Meanwhile, the common currency may be muted over the next few days as EUR investors await the European Central Bank’s (ECB) interest rate decision on Thursday.
This content was originally published on ExchangeRates.org.uk
