Pound Euro Exchange Rate Flat as ECB Still Not Ready to Discuss Tapering
(Updated 14:15, 25/8/21) The Pound Euro (GBP/EUR) exchange continues to trade in a limited range this afternoon, following some dovish comments from European Central Bank (ECB) chief economist Philip Lane.
Reuters reports that despite a more upbeat outlook for the Eurozone economy, Lane suggests that it is still ‘too early’ for the ECB to start discussing the end of its Pandemic Emergency Purchase Program (PEPP) at the bank’s next policy meeting in September.
Meanwhile, the Pound is unable to take advantage of any resulting weakness in the Euro as GBP investors remain wary about rising coronavirus infections in the UK and the potential impact this could have on the UK’s economic recovery.
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Pound Euro Exchange Rate Rangebound on Supply Chain Concerns
The Pound Euro (GBP/EUR) exchange rate is stuck in a narrow range this morning, as GBP investors are increasingly unnerved by the UK’s deepening supply chain crisis.
At the time of writing the Pound Euro exchange rate is trading at around €1.1632, virtually unchanged from this morning’s opening rate.
Pound (GBP) Undermined by Supply Chain Uncertainty
The Pound (GBP) is struggling to attract support this morning amidst mounting concern over the UK’s supply chain issues.
The publication of the Confederation of British Industry’s (CBI) latest distributive trade index yesterday brought these concerns back to the forefront after revealing that retailers’ stock levels have slumped to their lowest levels since the 1980s.
While global supply chains have been severely disrupted by the coronavirus pandemic, these issues appear to be have been exacerbated by Brexit in the UK.
Andrew Sentance, a former Bank of England (BoE) policymaker, comments:
‘It’s quite striking, I don’t think we can dismiss this as a flash in the pan. Now that lockdown has been eased, we’re seeing a truer reflection of the impact of Brexit and issues building up before the pandemic.
‘We could see this persisting for longer than people expect. Skills shortages could go on for a few years, the impact of Brexit on our ability to attract workers from the EU is not going to go away quickly and the process of training was quite significantly disrupted by the pandemic, when people were not working and furloughed.’
This is limiting the appeal of the Pound this morning, after reigniting fears that the UK’s economic recovery could be stifled by businesses being forced to temporarily shut down due to both a shortage of goods and staff.
Euro (EUR) Muted as German Business Climate Slides to Three-Month Low
At the same time, the Euro (EUR) is also muted this morning after the latest German IFO business climate index printed below expectations this month.
The IFO index dropped to a three-month low this month, falling from 100.7 to 99.4 against forecasts for a more modest drop to 100.4.
This is just the latest indicator from German to suggest that momentum in the Eurozone’s largest economy may be slowing, following a sharp drop in Germany’s latest business confidence index.
The lacklustre reading will stoke concerns over the trajectory of Germany’s economic recovery, and is likely to limit the appeal of the Euro going into the second half of the week.
Pound Euro Exchange Rate Forecast: Dovish ECB Minutes to Weigh on the Euro?
Looking ahead to the second half of the week, the Pound Euro (GBP/EUR) exchange rate could appreciate, following the publication of the minutes from the European Central Bank’s (ECB) latest policy meeting.
These are likely to reaffirm the ECB’s current dovish bias, with the bank’s reluctance to start tightening its monetary policy likely to remain a key pain point for the Euro going forward.
Meanwhile, any upside in the Pound could prove limited as GBP investors grow increasingly worried about the recent rise in UK coronavirus cases.