GBP/EUR Exchange Rate Firms on Risk-On Trading, Dovish ECB
(Updated 15:45, 08/11/2021) The Pound Euro (GBP/EUR) exchange rate has risen in the second half of today’s session, as a risk-on market mood prevails. Upbeat speeches from Federal Reserve policymakers helped bolster bullish trading, as officials forecast 2022 rate hikes and a fall in unemployment.
Also supporting the Pound (GBP), the UK has become the first country in the world to approve the antiviral pill, Molnupiravir, for drugs trialing at the end of the month.
Susan Hopkins, Chief Medical Adviser at the UK Health Security Agency said on Sunday that the trial was ‘great news’, adding that all the trials so far had been done with the unvaccinated, so the new trial would help understand how the pill could work in the vaccinated population.
Weighing on the Euro (EUR) meanwhile, the European Central Bank (ECB)’s chief economist Philip Lane commented that the Euro area is still confronted with weak medium-term inflation dynamics.
Lane warned: ‘If supply shortages and higher energy prices last longer, these could slow down the recovery… If persistent bottlenecks feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, price pressures could become stronger.’
Mixed USD trading has also affected the single currency, as a result of the strong negative correlation between EUR and the US Dollar.
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GBP/EUR Exchange Rate Trades Evenly Ahead of Speeches
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning, unable to recoup last week’s Bank of England (BoE)-inspired losses.
At the time of writing, GBP/EUR is trading at €1.1664, virtually unchanged from today’s opening levels.
Pound (GBP) Subdued over Brexit Headwinds
The Pound (GBP) is sliding against the majority of its peers today over ongoing Brexit tensions.
Officials fear that UK Brexit Minister David Frost may be on the brink of triggering Article 16 in an attempt to override the ‘obstruction of trade flow’ between Great Britain and Northern Ireland.
While Ireland’s prime minister warns that such a move would be ‘reckless’ and ‘irresponsible’, Lord Frost has repeatedly said the conditions to trigger it are met, reiterating that alternatives proposed by the European Union do not go far enough.
According to Simon Coveney, the Irish foreign minister, the EU feels that every time it offers an olive branch to the UK, the response of the British is to ‘constantly raise new problems’.
One Whitehall source implied that Frost’s desired outcome cannot be resolved by negotiations: that he is ‘looking for a time machine’ trying to undo Theresa May’s 2017 deal which embroidered the European Court of Justice (EJC) into the Brexit deal.
The fear is that the UK will not only invoke a formal dispute, but will use the breakdown of talks to drive through domestic legislation eliminating the EJC from the arbitration process. Such a move would breach international law, potentially triggering a chain of retaliatory trade restrictions.
Euro (EUR) Sentiment Dampened by Strong USD
The Euro (EUR) is also under pressure today as strong US Dollar (USD) demand weighs upon the single currency.
Eurozone retail sales exerted downside last week, printing at -0.3%: concerns over inflationary pressure and ongoing coronavirus infections dragged on spending, with further constraints expected ahead.
Germany also performed poorly in its own right, with industrial production dropping to -1.1% last week and factory orders missing estimates. The latest data from the bloc’s biggest economy has sparked speculation that a power shift is about to occur: according to Matthew Lynn of The Telegraph,
‘For most of the last 20 years, it was the Northern bloc led by Germany that signed all the cheques… That is not going to be true anymore. It will be France, Italy and Spain, with some help from Greece and Portugal that dominate the agenda.’
Lynn concedes, however, that German underperformance may be temporary. A surge in global demand may enable the country’s economy to bounce back: after all, ‘it is still a very strong economy, in far better shape than most of its rivals’.
Pound Euro Exchange Rate Forecast: German, Eurozone Data to Drive Movement?
Looking ahead, a clutch of data from Germany and the Eurozone is likely to influence Pound Euro trading through tomorrow’s session.
If Germany’s September trade balance prints higher than in August, the Euro will likely enjoy headwinds and concerns over the country’s weakening economy may be quietened.
However, if economic sentiment from the bloc falls this month, the single currency could come under increased pressure. Further USD strength is also likely to subdue EUR.