Pound Euro Exchange Rate Rangebound as Investors Reprice BoE Rate Hike Expectations

Pound Euro Exchange Rate Flat in Wake of Disappointing CPI Release

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range so far this morning as GBP investors continue to reposition themselves following yesterday’s inflation figures.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1860, virtually unchanged from this morning’s opening rate.

Pound (GBP) Muted as November Rate Hike Bets Fade

The Pound (GBP) is mostly rangebound so far this morning, following on from a major repricing of expectations for the Bank of England’s (BoE) next rate hike.

Prior to the publication of yesterday’s consumer price index – which reported a surprise dip in UK inflation last month – the majority of GBP investors appeared confident that the BoE would hike interest rates in November.

But the slowdown in inflation has raised significant doubts over this, with the odds of a rate hike next month dropping dramatically, and prompting a slight repositioning by most GBP investors.

However, most analysts still see the BoE hiking interest rates by the end of 2021, something which continues to underpin Sterling and allows the Pound Euro exchange rate to continue to trade close to a 20-month high.

Euro (EUR) Undermined by a Stronger US Dollar (USD)

At the same time, the Euro (EUR) is also struggling to find any strong directional bias this morning, as the single currency’s strong negative correlation with the US Dollar (USD) sees it undermined as the latter firms.

This uptick in the US dollar comes amidst an easing of market risk appetite, with investors growing increasingly nervous ahead of a key debt deadline for China’s Evergrande, after the property giant admitted there is ‘no guarantee’ it will be able to meet its financial obligations.

Also limiting the upside potential of the Euro this morning are recent comments from European Central Bank (ECB) officials reaffirming the bank’s dovish stance and dismissing inflation concerns.

EUR investors are also concerned by the news that Jens Weidmann, will be stepping down from the ECB’s governing council at the end of this year, leaving the bank with one less hawkish voice.

Pound Euro Exchange Rate Forecast: UK and Eurozone PMIs in Focus

Looking ahead to the end of this week, the main catalyst of movement in the Pound Euro (GBP/EUR) exchange rate looks to be the publication of the UK and Eurozone’s latest PMIs.

Up first will be the Eurozone releases, with October’s preliminary figures expected to report a further slowing of economic activity in the bloc’s private sector, an outcome which is likely to exert some pressure on the Euro.

The UK figures are expected to report a similar slowing of private sector growth this month, which could also weigh on Sterling sentiment tomorrow.

However any downturn in the Pound could be countered by the release of the UK’s latest retail sales figures, as economists forecast September’s figures will show that sales growth rebounded from -0.9% to 0.5%.

Matthew Andrews

Contact Matthew Andrews