GBP/EUR Update: Pound to Euro Exchange Rate Static on ECB Rate Hike Divisions

Speculation about Earlier ECB Interest Rate Hike Leaves GBP/EUR Exchange Rate Steady

UPDATE 2: The Pound (GBP) has held close to opening levels against the Euro (EUR) today, trading at a level of €1.13 on the interbank exchange rate.

Sterling advanced against the Euro earlier today, but recent remarks from European Central Bank (ECB) policymakers have raised optimism among Euro traders.

Speaking to Reuters, ECB officials revealed that they are at odds over when the presumed ECB interest rate hike should be in 2019.

For some, September is the earliest date for a possible rate hike, while others think a July rate hike could be more likely.

Although this is hardly a clear sign of an early 2019 rate hike, the fact that ECB officials aren’t unified on the matter has still raised EUR trader confidence.

BoE Rate Hike Uncertainty Spreads among GBP Traders, Dragging Pound to Euro Exchange Rate Down

UPDATE: The Pound (GBP) has levelled out in trading against the Euro (EUR) today, compared to earlier when Sterling was making minor gains.

This apparent fading of GBP trader confidence has been caused by tension ahead of a speech from Bank of England (BoE) Governor Mark Carney this afternoon.

Mr Carney will be discussing 2008’s global financial crisis at an event in Massacdhusetts, but might still respond to the latest UK political developments.

If he makes negative statements about recent government resignations then the Pound could fall in value against the Euro.

This is primarily because such remarks could spark uncertainty about whether there really will be a UK interest rate hike in August.

Increase in UK GDP Growth Pushes GBP/EUR Exchange Rate Higher

In the wake of Monday’s GBP/EUR exchange rate slide after Foreign Secretary Boris Johnson’s resignation, the Pound has continued to recover against the Euro today on the latest UK GDP data.

Tuesday’s stats showed an accelerating pace of economic growth, when more accurate Office for National Statistics (ONS) figures showed growth rose from 0.2% in April to 0.3% in May.

These supportive stats were followed by a National Institute for Economic and Social Research (NIESR) GDP estimate for Q2 2018, which showed a predicted increase from 0.2% to 0.4%.

GBP/EUR Exchange Rate Gains Limited by Fresh Conservative Resignations

While the Pound (GBP) has traded higher against the Euro (EUR) today, pairing gains have been limited by the fact that there is still high uncertainty about the government’s Brexit plans.

Following Boris Johnson and David Davis’ resignations on Monday, Conservative Party Vice Chairs Ben Bradley and Maria Caulfield have also resigned over Brexit disagreements.

The concern among traders is that this steady trickle of resignations could continue, leading to an eventual crisis in government.

Euro to Pound (EUR/GBP) Exchange Rate Declines after Slide in German Confidence Levels

The Euro (EUR) has lost ground to the Pound (GBP) today, while trading tightly against other peers.

This limited movement is down to a lack of solid data this morning, as well as poor German confidence results on Tuesday.

Yesterday’s ZEW surveys showed a decline in German economic optimism levels, with July’s figures revealing greater-than-expected reductions.

Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast for Volatility on NATO Summit

There aren’t many UK economic data releases or policymaker speeches left this week, but the Pound could still appreciate against the Euro in the near-term depending on how today’s NATO summit plays out.

The meeting could see a confrontation between EU members and US President Donald Trump, who has approached the summit with the intention of getting other members to pay more for their defence.

The security agreement recommends that members pay at least 2% of their GDP into the deal, but most nations pay far less than this and President Trump claims it is unfair that the US pays over 3%, by comparison.

Mr Trump is unlikely to try and withdraw the US from the security arrangement, but could still disrupt the meeting and panic Euro traders, forcing a GBP/EUR exchange rate rise.

There may be another chance for GBP/EUR gains if Thursday’s German inflation stats confirm a slowdown in June.

On the UK side, the last notable news will be Friday’s speech from Bank of England (BoE) policymaker Jon Cunliffe. Mr Cunliffe could boost GBP if he backs a near-term interest rate hike.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon