EUR/GBP Monthly Fundamental Forecast July 2014

utlook and Recommendation

The EUR/GBP  bounced around all month but closed near the center of its trading range at 0.8020. EUR hit a multi-month low in early June as the European Central Bank (ECB) cut interest rates, however ongoing positive flows and a bout of economic and Fed induced USD weakness helped EUR retrace from these levels. From here, the ECB will favor deep stimuli through multiple mechanisms, and unattractive interest rate differentials will weigh on the EUR through the remainder of the year. The GBP retains a solid tone against both the USD and EUR on the back of a strengthening economic environment (we estimate that the UK economy will grow by 2.8% in 2014) and the outlook for the most aggressive monetary tightening in the 18 months ahead; however, we think the market has gotten ahead of itself pricing in higher rates and accordingly expect GBP to prove vulnerable to easing from its highs into year-end.

Deflation worries remain high. Euro zone inflation surprised once again on the downside in May, slowing down to 0.5% y/y, back to its low point reached in March. Meanwhile, core inflation eased to 0.7% y/y, which prompted the European Central Bank (ECB) to revise down its entire inflation forecast profile to 0.7% y/y for 2014 and between 1.1% and 1.4% for 2015 and 2016, respectively. 2016:Q4 inflation is no longer forecast to reach 1.7% y/y and has been lowered to 1.5% y/y.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank Name – The Bank of England

Date of next meeting: July 10, 2014

Current Rate: 0.50%

Economic events for the month of July affecting EUR, GBP and USD