Pound Euro Surges as EUR Slides
(Updated 16:30, 25/10/21) The Pound Euro exchange rate continued to strengthen through Monday’s European session, gaining around 0.5%.
EUR weakness appeared to be the main driver behind the pairing’s gains after dire German business confidence data weighed heavily on the single currency.
Meanwhile, comments from Bank of England (BoE) policymaker Silvana Tenreyro failed to cause much movement in the Pound as they struck a similar tone as before on UK inflation.
The monetary policy committee member (MPC) said:
“Since August, we have had large upside news for near-term inflation from energy prices, an effect which should fade quickly.
“Effects of supply chain disruption should also be temporary but the speed of rotation back to normal is a key uncertainty.
“Balance of recent news on the economy is unlikely to have a large effect on the amount of tightening required over the next few years.
“Domestic cost pressures will depend on the evolution of the labour market now that the furlough scheme has ended.
“My policy votes will aim to strike a balance between these different effects and risks.”
After recent fluctuations in the GBP/EUR exchange rate due to investors repricing expectations on a BoE interest rate hike, the comments appear to have had little impact on the Pound, with the central bank’s November meeting due next week.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Gains on UK-EU Talks Optimism
The Pound Euro (GBP/EUR) exchange rate is climbing this morning after ending last week under pressure.
Optimism over UK-EU talks on the Northern Ireland protocol and a worse-than-expected reading in Germany’s Ifo business climate index are supporting GBP/EUR, which is trading around 0.3% up at 1.1841 on Monday morning.
Pound (GBP) Supported by NI Protocol Optimism
The Pound (GBP) is receiving support this morning after UK officials said that the first round of talks on the Northern Ireland protocol were ‘constructive’.
However, ahead of Brexit minister Lord Frost and European Commission Vice-President Maroš Šefčovič meeting next week, sources commented gaps remain on the role of the European Court of Justice.
UK officials commented: “The talks this week were constructive and we’ve heard some things from the EU that we can work with.
“There’s been plenty of speculation about governance this week but our position remains unchanged: the role of the ECJ in resolving disputes between the UK and EU must end.
“We need to see real progress soon rather than get stuck in a process of endless negotiation.”
Euro (EUR) Dented by Deteriorating German Business Confidence
The Euro (EUR) is slipping this morning after Germany’s Ifo business climate index for October fell more-than-expected to its lowest reading since April 2021.
The figure came in at a six-month low of 97.7, missing forecast of 97.9 and down from 98.9 in September.
Business morale in the Eurozone’s powerhouse economy deteriorated for the fourth month in a row as supply chain bottlenecks, soaring energy prices and rising Covid-19 cases threaten to slow Germany’s economic growth.
Ifo President Clemens Fuest said:
“Supply problems are giving businesses headaches. Sand in the wheels of the German economy is hampering recovery.”
With rising coronavirus cases in Germany making new restrictions likely, Germany’s economic recovery may suffer again.
Commerzbank economist Joerg Kraemer commented:
“The German economy is unlikely to grow much in the fourth quarter. Stagflation is on the horizon for this quarter at least,”
EUR exchange rates are also coming under pressure from the single currency’s negative correlation with the US Dollar, which is receiving support from rising US Treasury yields.
Pound Euro Forecast: UK Budget and ECB Rate Decision in Focus
The Pound Euro exchange rate could experience significant movement this week due to high-impact EU data, the UK autumn budget, and the European Central Bank’s (ECB) latest interest rate decision.
Ahead of Wednesday’s budget, UK Chancellor Rishi Sunak has announced a series of spending pledges, with GBP investors likely to look for insight into the potential impact on UK economic growth in midweek.
Expectations on the Bank of England (BoE) raising interest rates will also continue driving movement in Sterling, with a speech from policymaker Silvana Tenreyro in focus today.
Ahead of the ECB’s interest rate decision later in the week and before Friday’s Eurozone inflation rate figures, the divergent policy stance on tightening monetary policy between the BoE and ECB could continue driving fluctuations in GBP/EUR.
With a rate hike from the BoE increasingly expected by the end of this year or early 2022, the ECB appears to continue reiterating its commitment to loose monetary policy.
German third quarter GDP growth rate data and unemployment rate, and Eurozone economic sentiment and consumer confidence will also likely cause movement in EUR at the end of the week.