The GBP to EUR conversion recovered marginally after Eurozone inflation data showed prices increasing by 0.8% in October as ECB was still expected to expand stimulus in December.
- Pound to Euro Exchange Rate Today: 1.1143
- Euro to Pound Sterling Exchange Rate Today: 0.8975
The GBP/EUR rose on Monday due to the release of still subdued Eurozone inflation and reports of support for Bank of England Governor Carney from Prime Minister Theresa May.
The Pound rallied through the final hours of October with commentators pointing out that news Mark Carney will likely stay on at the Bank of England (BOE) for his full eight-year term was a positive for the currency.
Steve Rattner, chairman at Willet Advisors, said that the question of Carney's future at the Bank posed the week's biggest risk for global exchange rate markets.
“The fact that he appears to be staying on is good news because he is like Ben Bernanke, Janet Yellen or Draghi for that matter, a really really capable central banker and it's good to have him at the helm at these rather turbulent times,” Rattner said.
The Euro meanwhile struggled into month-end.
Eurozone CPI data showed a 0.5% increase in prices in October compared to a year ago and Core Inflation rose by 0.8% year-on-year.
The results showed a steady if unspectacular rise in inflation which was exactly in line with analysts’ forecasts.
The Euro weakened shortly after the release despite inflation data hitting a two and a half year high, as analysts argued it remained subdued overall.
There was little change to Euro exchange rates following the result, with GBP/EUR rising only two-tenths of a cent after the release – from 1.1105 to 1.1125.
Prior to the release Economist, Ralf Umlauf of Helaba Economics suggested the Core inflation rate might the more important metric to focus on due to recent volatility in oil prices.
“Central bankers have recently started to intensify their focus on core inflation – which is usual in the US.
“When the flash estimate of euro area consumer prices comes out today, market participants will be watching the corresponding release of core inflation all the more closely,” he said.
The result did not particularly change the uncertain outlook as to whether the European Central Bank (ECB) will increase or leave alone monetary policy at their next meeting but the trajectory of inflation is clear - higher.
Therefore, we would expect the prospect of further stimulus from the ECB to diminish over coming months should the trajectory of price growth continue heading this way.
This is a positive for the Euro longer-term and could aid to the uptrend in EUR/GBP.
J. P Morgan Bullish on the Euro
The rapid rise in international yields has been led by a strong recovery in German Bund yields, which are widely regarded as a de facto Eurozone sovereign bond.
This has led J P Morgan to forecast more short-term gains for the Euro.
It is thought the inflation data will not impact negatively on this rise in yields.
“EUR will likely outperform within G3. Given that investor, positions appear most crowded in Euro area bonds and that Draghi has stayed noncommittal on the magnitude of QE extension, it is not unreasonable to expect that Bund yields will continue to lead the way higher pulling Bund-Treasury yield spreads wider.
“Indeed, this has been the dynamic at play and has resulted in EUR outperformance in G10 this week.”
Technical Forecast: GBP/EUR Could Recover Lost Ground
From a technical perspective, our forecast remains unchanged: GBP/EUR has pulled back after touching a tough ceiling of resistance at a major downtrend line.
It has corrected back from the 1.12s to the 1.10s.
The long exhaustion bar at the time of the flash crash indicates the probability that a significant market bottom may have been established.
If the pair breaks above the trend-line and the 1.1265 highs, it is likely to continue up to a target at 1.1330.
It would take a break below the 1.0600 lows to confirm a continuation of the downtrend to a target at 1.0500.