By FXEmpire.com
EUR/GBP Monthly Fundamental Forecast April 2012
Outlook and Recommendation
The sovereign debt crisis in Europe has somewhat stabilized as the European Central Bank has eased bank funding and liquidity concerns while maintaining a loose monetary policy. Accordingly, a more stable credit market environment facilitated the sizable refinancing requirements of the first quarter of the year. The European ‘firewall’, though somewhat disappointing, has received agreement from major stakeholders and many sovereign debt spreads have eased off their highs. However, the risks are large, particularly as Spain appears to be struggling under strict austerity and disappointing growth. In addition, credit-default swap markets, which passed a major credibility test following the Greek debt restructuring, are still discounting Portugal’s inability to service its debt obligations.
EUR/GBP is trading at 0.8250
For the month:
The UK’s medium-term growth prospects continue to compare favorably with those of its continental counterparts. The manufacturing PMI posted an unexpected gain in March, rising to 52.1, while the same indicator for the euro zone indicated a continued contraction in activity, with France and Germany falling back below the neutral 50-mark. Nevertheless, the economic situation is tenuous. Fourth-quarter GDP growth was revised lower in the final print (on a retrenchment in services), meaning that the economy grew only 0.7% in 2011 (the previous estimate was 0.8%). Inflation, at 3.4% y/y in February, has proved to be stickier than anticipated, and will likely average well above the Bank of England’s (BoE) 2% target this year. Recent official rhetoric suggests that additional quantitative easing is unlikely (notwithstanding two dissenters favoring expanded asset purchases at the last BoE meeting), though this will depend on key economic data over the coming months.
Central Bank
ECB INTEREST RATE DECISION
Actual: 1%Cons.: 1%Previous: 1%
ECB Interest Rate Decision is announced by the European Central Bank. Usually if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
The Bank of England -BOE INTEREST RATE DECISION
Actual: 0.5%Cons.: 0.5%Previous: 0.5%
BoE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
Originally posted here
