09062016 Euro Forecast

The UK pound remains flat against the euro as Brexit concerns weigh on sterling even after the latest British industrial production numbers rocket higher. As of 07:15 GMT this morning, one UK pound exchanged 1.2724 euros, or 0.04% lower (GBP/EUR).

Industrial production across Britain jumped unexpectedly in April, thanks to the largest rise in manufacturing output for almost four years, official data showed yesterday.

UK April Industrial Production posted a 2.0% rise, when analysts had only expected a 0.0% increase from March’s more modest 0.3% rise. April Manufacturing meanwhile increased by 2.3% versus 0.1% forecast and 0.1% previous.

However, the British pound remains flat against the euro and most major world currencies with Brexit fears remaining the main concern for the UK’s exchange rate, and the Bank of England has warned that economic figures are likely to be volatile and tricky to interpret in the run-up to the UK referendum, now only two weeks away.

While most of Britain’s economic data has been disappointing in recent months, with worries about the upcoming EU referendum frequently cited as the main cause for the slowdown, Wednesday’s numbers are a welcome surprise, even if they may not be signalling a big recovery.

Even if the Brexit vote passes without delivering a major shock to the British economy, most banks have doubts that the Bank of England will be able to start raising interest rates this year.

“Overall, we remain of the view that UK industrial production and manufacturing remains a cause for concern. We believe this is driven by a structural lack of competitiveness, itself magnified by a strong currency, which although it has depreciated since mid-November 2015, is still historically strong.” Barclays analysts said in a note.

ECB Bond Buying Kicks Off

Meanwhile, the euro pushed higher as the European Central Bank launched new stimulus operations. The ECB stepped into uncharted territory on Wednesday when it began to buy bonds issued by companies, in a bid to also kick start euro-zone inflation.

ECB chief Mario Draghi hopes the scheme, set to be worth billions of euros every month will deliver the financial medicine directly where it is needed, with Europe’s major public corporations.

The ECB bought bonds from telecommunications, insurance and utility companies, pushing yields down in these sectors. The purchases are part of the central bank’s year long attempt to stoke inflation and lower financing costs across the euro-zone.

Investors said the ECB bought big on Wednesday to make a splash on the first day of it’s new scheme, though some market participants question the effectiveness of such unconventional monetary policy.