The dovish ECB meeting prompts GBP/EUR rally

The dovish ECB meeting prompts GBP/EUR rally

21/06/2018 15:09
Travel news
THE pound has been putting on a mixed performance in recent weeks, amid a flurry of disappointing domestic data, with only sterling showing any notable movement against a significantly-weakened euro.
GBP/EUR has seen some large swings over the last two weeks, but it is pretty much back to where it began at 1.13, with EUR/GBP holding at 0.87.
Meanwhile, the GBP/USD exchange rate has fallen from 1.34 to 1.31, and the EUR/USD from 1.17 to 1.15.
The past couple of weeks have seen the pound suffer from a fair amount of volatility, in the face of some mixed, domestic data, and renewed Brexit uncertainty.
In terms of data, the main drag on sterling came as both inflation and wage growth printed below expectations, only some robust, retail, sales figures offering support for GBP.
At the same time, the pound has been undermined by growing anxiety regarding Brexit, the Government facing a couple of narrow votes in seeking to pass its key, EU withdrawal bill. However, GBP/EUR did jump, briefly, despite these concerns.
This came in the wake of the European Central Bank’s (ECB) latest policy meeting, with the euro suffering a large sell-off, as the bank pledged to leave interest rates on hold, well into 2019. Thus, it overshadowed the announcement that it would wind down its stimulus programme, by the end of 2018.
Meanwhile, the US dollar was able to capitalise on the weakness in the euro to recoup some of the ground lost, following Trump’s heated G7 summit appearance, and the latest Federal Reserve rate decision.
The short-term outlook for the pound looks set to revolve around the Bank of England’s (BoE) latest policy meeting. Markets will be paying close attention to this month’s forward guidance, as they gauge the likelihood that the bank could target a rate-hike in August.
Euro sentiment looks set to take another hit this week, with the Eurozone’s PMI data forecast to reveal another slowdown in growth this month, while a slowdown in inflation in June is also unlikely to do the euro any favours.
The US dollar has seen its lead over its peers extended recently, with escalating trade tensions between the US and China helping to drive safe-haven demand.
Look for this trend to continue, if Trump appears set to heap further pressure on Beijing, with gains in the USD exchange rate, possibly being driven by the upbeat US economic data expected over the coming weeks.
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