Pound Euro Exchange Rate Continues to Climb on Central Bank Tailwinds
(Updated 16:00, 06/12/2021) The Pound Euro (GBP/EUR) exchange rate has carried on rising throughout today’s session as Pound (GBP) sentiment is further buoyed by a hawkish speech from the Bank of England (BoE)’s deputy governor, Ben Broadbent.
Late this morning, Broadbent warned that Britain’s tight labour market will add pressure on inflation, reigniting some hopes for an interest rate hike. The deputy governor speculated that inflation might ‘comfortably exceed’ 5% in April next year, stipulating that any references to ‘transitory’ inflation should be understood as referring to the next 18-24 months.
Jane Foley, head of FX strategy at Rabobank, observes that:
‘[These comments] re-focus attention on the possibly of rate hikes from the Bank, though the market is far from convinced about a move next week.’
Foley also draws a parallel between Broadbent’s remarks and those of Catherine Mann last week: Mann had said that the Omicron variant of COVID-19 could bring more inflation if consumers switch demand again from services to goods.
On the whole, markets expect the BoE to keep interest rates unchanged at its 16 Dec policy meeting – Jeremy Stretch, head of G10 FX strategy at CIBC, reminds investors that ‘Omicron-related uncertainty is compromising the prospect of a December move.’
Original article continues below:
GBP/EUR Exchange Rate Rises on Mixed German and Eurozone Releases
The Pound Euro (GBP/EUR) exchange rate shot up this morning as EU data revealed mixed results and Eurozone investor confidence fell further than expected. Meanwhile, the UK’s construction PMI beat expectations on a sharp increase in business activity.
At the time of writing, GBP/EUR is trading at €1.1739, up 0.3% from today’s opening levels.
Euro (EUR) Dented by German Factory Orders, Construction PMI
The Euro (EUR) is falling against the majority of its peers this morning despite a risk-on mood, as German data reveals a greater-than-expected decline in factory orders, as well as a contraction in construction activity.
New orders for German manufactured goods plunged 6.9% month-on-month in October, as foreign demand tumbled 13.1%. Orders fell by 3.2% from the Euro Area and a considerable 18.1% from other countries.
The IHS Markit German construction PMI edged up to 47.9 in November from 47.7 in the previous month: the highest level since August 2020 but still below market forecasts of a rise to 48.5. The figure is also still below the 50.0 no-change threshold amidst continued pandemic disruption.
Also weighing upon the single currency, the Eurozone Sentix Investor Confidence gauge fell to 13.5 in December from 18.3 last month, as opposed to the 15.9 expected – dropping to its lowest levels since April.
Sentix analysts attribute the fall to tighter lockdown measures, commenting that a slowdown to the point of recession no longer seems out of the question.
Pound (GBP) Firms Overall as Construction PMI Reveals Growth in Activity
The Pound (GBP) received tailwinds this morning from a better-than-expected construction PMI. The Purchasing Managers’ Index rose to 55.5 in November 2021 indicating a robust and accelerated expansion of overall construction activity.
Across the UK, commercial work rose the most since July, with total new business growth hitting a three-month high amid improving client demand, and supplier performance reaching its highest level since April.
Sterling is also supported by an overall risk-on mood, which is elevating riskier assets against their safe-haven peers. Market sentiment is high as investors attempt to shake off Omicron concerns – according to Jeffrey Halley at OANDA:
‘The driver of the whip-saw return of serve omicron headline tennis comes from South Africa, where an article from the South African Medical Research Council, suggests that omicron symptoms were milder than previous incarnations, with hospitalised patients mostly having comorbidities.’
Pound Euro Exchange Rate Forecast: BoE Speech to Influence Trading?
Looking ahead, a speech from Bank of England (BoE) policymaker Ben Broadbent may have an effect on this afternoon’s trading dynamics – Broadbent tends to sit on the fence between dovish and hawkish policy moves: any dovish signalling today could dent Sterling sentiment.
Into tomorrow, data from the British Retail Consortium may influence the Pound Euro exchange rate, while German industrial production and Eurozone GDP are likely to affect the Euro. The third GDP estimate is expected to confirm marginal growth in the EU economy.