Pound Euro Exchange Rate Firms as Analysts Say ‘Market Too Aggressive’
(Updated 16:50, 11/03/2022) The Pound Euro (GBP/EUR) exchange rate has jumped this afternoon as the Euro (EUR) comes under pressure following the European Central Bank (ECB)’s announcement.
Yesterday’s hawkish ECB decision to taper the Asset Purchase Programme (APP) quicker than initially intended prompted investors to place rate hike bets which Scotiabank analysts say are unrealistic. The bank says that markets are too aggressive about a September rate hike which, amid geopolitical concerns, is unlikely to occur.
Uncertainty over trading conditions ahead has inspired EUR downside, allowing the Pound (GBP) to rise against its peer. The UK’s strong GDP figures published this morning have continued to provide Sterling support throughout the day
Furthermore, Britain’s industrial output rose 0.7% in January, driven by 0.8% growth in manufacturing production. The data reaffirmed expectations that the Bank of England (BoE) will hike interest rates at its meeting next week, bolstering GBP further.
Original article continues below:
GBP/EUR Exchange Rate Wavers Following UK Economic Expansion
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning following the release of UK and German data. While German inflation printed at 5.1% as expected, UK GDP exceeded forecasts.
At the time of writing, GBP/EUR is trading at €1.1899, virtually unchanged from today’s opening levels.
Pound (GBP) Trades Mixed despite GDP Tailwinds
The Pound (GBP) is trading in a mixed range against its peers in spite of upbeat data this morning, which revealed that the UK economy expanded by 0.8% in January 2022.
Today’s GDP data marks the strongest UK economic growth in 7 months, with all sectors posting solid gains: services were up 0.8%, production 0.7% and construction 1.1%. UK GDP is now 0.8% above its pre-coronavirus level.
Capping Sterling gains, however, is an overall risk-averse mood, following yesterday’s fruitless negotiations between Russia and Ukraine.
Ukraine’s Dmytro Kuleba commented ‘we cannot stop the war if the country that started the aggression has no desire to do so’; meanwhile, the UK’s defence ministry has said that Russia is likely to reposition its forces for renewed offensive activity in the coming days.
According to a report from the ministry:
‘It remains highly unlikely that Russia has successfully achieved the objectives outlined in its pre-invasion plan.
Russia is likely seeking to reset and re-posture its forces… This will probably include operations against the capital Kyiv.’
Euro (EUR) Struggles to Climb on Dovish ECB Comments
The Euro (EUR) is trading narrowly against its peers today following the release of Germany’s finalised inflation rate. While February’s CPI printed at 5.1% as expected, gains are capped by a risk-off mood and dovish comments from the European Central Bank (ECB).
According to the Federal Statistical Office, Germany’s rise in energy product prices was markedly higher than overall inflation; on a monthly basis, consumer prices were up 0.9%, accelerating from a 0.4% gain in January.
This may have inspired initial upside, as investors hoped that inflationary pressures would trigger hawkish policy action from the ECB: however, policymaker Francois Villeroy de Galhau remarked this morning that:
‘The European Central Bank (ECB) will take as much time as necessary to examine any rate hike decision.
We are lifting the foot from the accelerator without stepping on the break… [A] rate hike could come some weeks or several months after APP ends.’
Villeroy de Galhau’s vague comments suppressed bullish tailwinds, while fresh missile assaults in Ukraine dampened EUR trading sentiment further.
As reported by the Ukrainian Defence Minister Oleksii Reznikov, Russian forces have killed more Ukrainian civilians than soldiers in the two weeks since the invasion began.
GBP/EUR Exchange Rate Forecast: Ukraine Developments to Inspire Currency Movements?
Looking ahead, a lack of significant data for both the UK and Euro area on Monday leaves the Pound Euro exchange rate to trade on external factors.
The main driver of movement for the pair will likely be the Ukraine conflict, as intensifying violence and a breakdown of diplomatic communications would likely inspire risk-off trading.
If negotiations turn more promising, however – and effective humanitarian corridors are established leading out of Mariupol – risk-on upside could buoy GBP/EUR.