Pound to Euro (GBP/EUR) Exchange Rate Dips as Euro Investors Brace for US Fed Interest Rate Decision

GBP/EUR Exchange Rate Falls as German Import Prices Rise in June

The Pound to Euro (GBP/EUR) exchange rate dipped by -0.1% today, with the pairing currently trading around €1.10.

The Euro (EUR) edged higher as investors sell-off the Euro’s biggest competitor, the US Dollar (USD), ahead of the Federal Reserve’s interest rate decision later today.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

‘The Fed is not expected to bring any significant changes to its policy stance at this month’s meeting. US policymakers will likely emphasise the lingering risks on the US economy and maintain an ultra-supportive monetary policy to provide support to its economy ravaged by the pandemic.’

In Eurozone economic news, today saw the release of Germany’s Import Price Index for June rise from 0.3% to 0.6%. As a result, EUR investors are becoming more hopeful for the bloc’s powerhouse economy’s recovery from the Covid-19 pandemic.

Meanwhile, French Consumer Confidence for July undershot forecasts and fell from 96 to 94. With a growing number of Covid-19 cases in Europe, EUR investors are becoming increasingly cautious as we enter August.

Analysts at Reuters commented:

‘The renewed decline in July comes as new COVID-19 infections flared up, leading France and other countries in Europe to impose new restrictions. France made wearing a face mask in enclosed public spaces mandatory on July 20.’

Pound (GBP) Struggles as BoE Consumer Credit Falls Below Forecasts

The Pound (GBP) struggled today after the Bank of England’s (BoE) consumer credit report suffered a record annual decline in June. Consumer repaid less credit than expected at £86 million rather than £2 billion.

However, UK Mortgage Approvals beat forecasts in June, rising from 9,273 to 40 thousand. However, many GBP investors continue to remain concerned for Britain’s economic recovery going forward.

Sterling has struggled on growing concerns that Brexit and the coronavirus could provide a ‘simultaneous shock’ to the British economy. The London School of Economics (LSE) suggested that other sectors – currently unscathed by Covid-19 – could be hit by Brexit in December.

Swati Dhingra, an economics professor who helped author the LSE’s report said:

‘Our analysis shows that the sectors that will be affected by Brexit and those that are suffering from the Covid-19 pandemic and lockdown are generally different from each other.’

GBP/EUR Outlook: Could Weak German GDP Figures Drag Down the Euro?

Euro (EUR) traders will be looking ahead to tomorrow’s release of the flash German GDP figures for the second quarter. If this confirms consensus and falls by -11.1%, then we could see EUR fall against the Pound.

Tomorrow will also see the flash German inflation figure for July. However, if this remains in the doldrums, we could see the EUR suffer.

The GBP/EUR exchange rate will remain sensitive to Brexit developments this week. Any signs that UK-EU trade negotiations are progressing would prove GBP-positive.

David Moore

Contact David Moore