GBP/EUR Slopes Down as Euro Sentiment Rockets Upwards
(Updated 16:25, 29/03/2022) The Pound Euro (GBP/EUR) exchange rate has continued to fall through this afternoon, as support for the single currency abounds on easing tensions in Ukraine.
Negotiations between Ukrainian and Russian delegates appeared to yield progress today, as the Russian Defense Ministry announced it would ‘scale down’ operations around Kyiv and Chernihiv in order to foster more constructive conditions for talks.
Gold prices tumbled following the comments, as investors withdrew from safe-haven investments; slackening support for the US Dollar (USD) led to increased strength in the Euro on account of the currencies’ strong negative correlation.
Also supporting EUR is an apparent melt-up in Eurozone bond yields. German 2-year yields climbed by more than 10bps on the day – more than the 4bps rise in US 2-year yields – as money markets up their European Central Bank (ECB) policy tightening bets.
Meanwhile, a lack of significant UK data exposed Sterling to losses this afternoon, although the Pound retained considerable strength as risk sentiment improved. Geopolitical headlines lifted hopes for more effective diplomacy between Ukraine and Russia, boosting the value of perceived-riskier currencies.
Original article continues below:
Pound Euro Exchange Rate Tumbles Following UK Consumer Credit Release
The Pound Euro (GBP/EUR) exchange rate is falling this morning in spite of lower-than-expected consumer confidence in Germany, as Pound (GBP) sentiment remains subdued over a dovish Bank of England (BoE). Upbeat consumer credit data has failed to lend Sterling significant tailwinds.
At the time of writing, GBP/EUR is trading at €1.1892, down 0.2% from today’s opening levels.
Euro (EUR) Retains Upside on Stronger Market Mood
The Euro (EUR) is trending up against the majority of its peers today as risk appetite recovers, boosting the single currency.
Lending upside is news that Russia is no longer demanding Ukraine be ‘denazified’ in the upcoming negotiations; also supporting a risk-on mood, China’s Shanghai city announced that they will roll out economic policies to help firms through the latest coronavirus lockdown.
Included in the supportive measures are refunds that will reduce firms’ tax burdens by 140 billion yuan ($22 billion) in 2022.
Capping gains somewhat is Germany’s latest consumer confidence data, which revealed this morning that consumer morale fell to -15.5 heading into April.
This is the lowest reading since February 2021, weighed down by civilian sentiment in response to the war in Ukraine and intensifying inflationary pressures. According to Rolf Bürkl at the Gfk Group:
‘In February, hopes were still high that consumer sentiment would recover with the easing of pandemic-related restrictions. However, the war in Ukraine caused these hopes to vanish… Increasing uncertainty and the sanctions against Russia have caused energy prices to skyrocket and are having a noticeable impact on general consumer sentiment.’
Pound (GBP) Subdued by Dovish Bank of England
Sterling is falling against several peers today as GBP appeal is limited by bearish headwinds. Following the UK’s latest consumer credit data, investors seem more focused upon Andrew Bailey’s latest forward guidance, which betrayed a dovish tone.
A credit reading of £1.876bn as opposed to the £0.843bn expected signals that UK consumers are borrowing, and therefore spending, more – but the data has done little to distract traders from a bleak BoE outlook.
In a speech yesterday titled ‘Macroeconomic and Financial Stability in Changing Times’, Bailey said that the economic situation was very volatile, adding that ‘we are at an even more challenging point for global economy than after the global financial crisis.’
The BoE Governor expanded to say that it will take time for the central bank to come to a proper assessment of how ‘the joint experience of COVID and Ukraine invasion cause the world economy to emerge into new steady state.’
According to analysts at HSBC, the BoE’s recent dovishness, combined with March’s 25bps rate hike, is likely to extend the bearish theme through the next few weeks, capping GBP tailwinds.
‘We believe the shadow cast by the BoE meeting over the GBP will persist in the coming weeks, especially if BoE members continue their dovish refrain’ said representatives at the bank.
Pound Euro Exchange Rate Forecast: German Inflation to Influence Movement?
Looking ahead, German inflation data may affect Euro exchange rates tomorrow. If the country’s CPI reading exceeds last month’s, as expected, the single currency may enjoy a boost as pressure mounts upon the European Central Bank (ECB) to tighten monetary policy.
Meanwhile, the Pound will likely continue to trade on BoE dynamics and external factors. If progress is achieved in Ukraine-Russia peace talks, Sterling may be buoyed by risk-on tailwinds.