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FU: Euro British Pound Long-Term Forecast: Improving Eurozone Price Pressures Could Prompt ECB Action
 
The Euro British Pound exchange rate has slipped this week in response to Sterling strength. However, after this week’s Eurozone growth and inflation figures the outlook for the bloc appears to be improving. EUR GBP traded at 0.85 on Thursday.

Euro (EUR) Supported by Stronger Than Expected Ecostats

The Eurozone datasets published over the last week have generally improved the outlook for the currency bloc, beating expectations or coming in broadly within expectations and indicating that the economy is steadily growing.

This has been largely due to Tuesday’s slew of data including an impressive German unemployment rate for January and Eurozone unemployment rate for December.

Eurozone Gross Domestic Product (GDP) also looked to beat quarterly growth in the Q4 flash print, and the bloc’s Consumer Price Index (CPI) projection for January also beat expectations with a strong result of 1.8%.

While Wednesday’s Eurozone manufacturing PMIs for January were mixed, coming in below expectations in Italy and Germany, the figure was solid overall with the bloc’s total score beating expectations at 55.2.

With all this week’s data beating expectations, the shared currency outlook has improved despite being held back this week slightly by news that a poor Brexit deal could harm the EU more than the UK.

Pound (GBP) Benefits from Strong Data, but Outlook Remains Cloudy

This week’s main boost for the Pound came from a notably strong January UK manufacturing PMI from Markit. The figure came in at 55.9 as predicted, close to December’s multi-year-high of 56.1.

The most impressive part of the publication was the news that input prices (the prices UK manufacturers pay for raw materials) soared to 88.3 – far higher than a typical PMI result of 40-60.

However, while investors rallied around this impressive figure on Wednesday, concerns remained about Britain’s growth outlook and the incoming Brexit process.

UK forecasters have increasingly suggested that UK growth could be hurt during the Brexit process as the low value of the Pound hits UK consumers directly in the pocket and damages the previously strong UK serves sector.

This week also saw UK MPs vote overwhelmingly in favour of taking the Article 50 bill to its final stage of Parliamentary action.

Euro British Pound Long-Term Forecast: Eurozone Economic Outlook Looking Up, UK Looking Down

After this week saw yet another better-than-expected inflation result from the Eurozone, traders are hoping that this one may be enough to convince the European Central Bank (ECB) that underlying price pressures are improving after all.

If the ECB appears impressed with inflation stats during its next meeting, the Euro could soar as bets would increase that the bank will edge away from its easing bias in the coming year.

However, if ECB President Mario Draghi continues to seem unimpressed with the Eurozone’s recovery, the Euro will be unable to increase in value significantly over the long-term.

As for the UK, this week’s manufacturing PMI increased hopes that the manufacturing sector was becoming strong enough to prop up growth more effectively.

This could hopefully offset any easing that may happen when inflation negatively hits the services sector. Previously, the services sector was noted as being the sole reason for Britain’s strong growth in late-2016.

EUR GBP Interbank Rate

At the time of writing, the Euro British Pound exchange rate trended in the region of 0.85 while the British Pound Euro exchange rate traded at around 1.17.

Source