Pound Euro (GBP/EUR) Exchange Rate Hits 12-Day High
(Updated 15:30, 22/3/22) The Pound Euro (GBP/EUR) exchange rate hit a 12-day high this morning and has managed to hold above €1.20 through the rest of the session.
The rise in GBP/EUR comes as central bank policy divergence supports the Pound (GBP), allowing it to recover from last week’s slump. Investors are now eyeing tomorrow’s UK CPI. If inflation exceeds forecasts, rate hike bets could be back on.
In addition, GBP traders seem to have taken a cheerful view of the latest public sector borrowing data, despite some mixed figures.
The deficit in public finances came in much larger than markets expected. Government borrowing printed at £13.1bn, versus the expected £8.1bn. In addition, soaring inflation continues to push debt interest payments sharply higher.
However, thanks to stronger-than-expected tax revenue, overall government borrowing for the financial year 2021/22 is on course to come in below government forecasts.
This positive news comes as Chancellor Rishi Sunak prepares to unveil his spring budget tomorrow. Markets are hoping that, with the public purse faring better than expected, Sunak could announce measures to help with the UK’s cost-of-living crisis.
James Smith, Research Director at the Resolution Foundation, said:
‘The chancellor will approach the UK’s latest crisis – the tightest income squeeze in generations, exacerbated by the Russian invasion of Ukraine – with the public finances in better shape than expected, increasing the chance of significant policy action to support families through the tough year ahead.’
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Recovers BoE-Induced Losses
The Pound Euro (GBP/EUR) exchange rate strengthened today as Sterling continues to recover its losses following the Bank of England’s (BoE) interest rate decision last week.
At the time of writing, GBP/EUR is trading at a 12-day high, just above €1.20.
Pound (GBP) Continues Post-BoE Recovery
The Pound (GBP) hit a 12-day high this morning as it continues its post-BoE recovery.
At last week’s interest rate decision, the British central bank disappointed markets by striking a dovish tone. The BoE reined in aggressive rate hike bets by saying that ‘some further modest tightening in monetary policy might be appropriate’. Previously, the bank had said that further tightening was ‘likely’.
GBP/EUR slumped in response but has since surged, rising higher than it was before the rate decision.
The strength in the Pound Euro exchange rate comes as traders reposition following the post-BoE slump. Despite the dovish forward guidance, the BoE remains well ahead of the European Central Bank (ECB). The BoE has enacted three back-to-back rate hikes, with interest rates now at the pre-pandemic level of 0.75%. Meanwhile, the ECB’s interest rate remains at a record low of 0%.
GBP investors are now looking ahead to tomorrow’s CPI release. Economists expect UK inflation to jump from 5.5% to a fresh 30-year high of 5.9%. With price pressures set to increase, markets may begin pricing in more aggressive BoE rate hikes once again.
Euro (EUR) Softens on ECB Divergence and Energy Fears
As for the Euro, this policy divergence between the ECB and the BoE is hurting the single currency.
In addition, rising energy prices are adding to the pressure on EUR. In recent days, EU countries have been mulling a Russian oil embargo, though opinions are split. The news suggests that such a ban is on the table, however, should the war worsen.
With Europe heavily dependent on Russian fossil fuels, rising prices and energy-related sanctions could hit the Eurozone economy hard.
Pound Euro Exchange Rate Forecast: Can Sterling’s Rally Last?
At the time of writing, the Pound Euro pair is extending its upside. How high can it climb before it meets resistance?
Later this afternoon, ECB President Christine Lagarde is due to speak. Depending on the tone she strikes, her comments could cause some movement in the Euro.
News from Ukraine could also impact the pair. After upbeat reports of progress in peace talks, negotiations seem to have stalled. Some analysts also fear that Moscow may be using talks as a ‘smokescreen’ and that the conflict could still escalate further. Any downbeat news could hit the Euro harder than the Pound.