Pound Euro Exchange Rate Falls from 23-Month High amid GBP Profit-Taking

Pound Euro (GBP/EUR) Exchange Rate Suffers Sell-Off as Traders Seek to Cash In

(Updated 15:30, 11/1/22) The Pound Euro (GBP/EUR) exchange rate relinquished its gains earlier today as GBP investors sought to profit from the Pound’s (GBP) 23-month high against the Euro (EUR).

While strong sales data and Bank of England (BoE) rate hike expectations boosted GBP, there were plenty of reasons for investors to sell for a profit.

Allegations of yet another Downing Street party once again plague Boris Johnson’s premiership. The news both increases political uncertainty in the UK and might undermine the government’s Covid guidance.

In addition, Northern Ireland protocol negotiations are set to resume this week. The UK’s new chief negotiator, Foreign Secretary Liz Truss, has reiterated the UK’s threat to trigger Article 16.

And while UK Covid cases have fallen in recent days, virus-related absences continue to put pressure on the country’s vital services.

With these potential headwinds on the horizon, it seems that many GBP investors chose to quit while they were ahead.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Firms on UK Sales Report and BoE Rate Expectations

The Pound Euro (GBP/EUR) exchange rate has hit a 23-month high today as strong UK sales data boosts Sterling.

GBP/EUR has broken past the €1.20 mark for the first time since February 2020. Along with the sales data, rate hike expectations from the Bank of England (BoE) are boosting the Pound (GBP).

Pound (GBP) Surges on Sales Data

The Pound is strengthening today following some upbeat UK sales data.

The latest Retail Sales Monitor report from the British Retail Consortium painted a positive picture of domestic UK sales in 2021. Although December’s total sales rose by less than expected month-on-month, they were 2.1% higher than December 2020 and 4.6% higher than 2019.

In addition, November’s already-strong sales came in even higher than initial estimates. For the whole of 2021, sales grew by 9.9%.

The results show a strong recovery in retail as the UK economy bounced back from tough lockdowns. However, the positive results came with a caveat. Retailers warn that the current cost-of-living crisis facing the UK could hit sales this year.

Separate data from Barclaycard corroborated the report, with November’s consumer spending printing 16% higher than in November 2019, before the pandemic hit.

These figures add to the case for a further rate rise from the BoE at its policy meeting next month. Expectations of a second consecutive Bank Rate rise are adding to the Pound’s upside.

Euro (EUR) Slips on BoE-ECB Divergence

Meanwhile, the Euro (EUR) has slipped so far today as central bank policy divergence drags it down.

While markets expect the BoE to hike at its next meeting, the European Central Bank (ECB) looks as though it will stay its current course of patience and caution.

Speaking earlier this morning, ECB President Christine Lagarde tried to reassure people that the bank was taking inflation seriously. She said:

‘People can trust that our commitment to price stability is unwavering, which is critical for the firm anchoring of inflation expectations and for confidence in the currency’.

However, there was no indication that the central bank’s thinking had changed. Despite Eurozone inflation hitting an all-time high of 5% last week, the ECB seemingly remains dovish.

Pound Euro Exchange Rate Forecast: Hawkish Fed to Hammer the Euro?

At the time of writing, it seems as though the Pound Euro pair may have reached its zenith for today’s session.

Other factors could come into play as the day progresses, however. With Northern Ireland protocol negotiations continuing this week – now headed by the Foreign Secretary, Liz Truss – Brexit developments could impact the Pound. Further tensions may weigh on Sterling, while any positive news could lift it.

As for the Euro, Federal Reserve Chair Jerome Powell is due to testify in front of the US Senate this afternoon. If he gives more hawkish signals, as analysts expect, this could boost the US Dollar (USD), which may weigh on EUR due to the currencies’ negative correlation.

Samuel Birnie

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