Pound Euro Exchange Rate Heads South as Markets Scale Back BoE Rate Hike Bets

Pound Euro (GBP/EUR) Exchange Rate Slips as Income Crunch Dents Rate Hike Expectations

(Updated 15:45, 26/4/22) After an initial rise, the Pound Euro (GBP/EUR) exchange rate slipped lower today.

The downside comes as the UK’s cost-of-living crisis dampens expectations that the Bank of England (BoE) will continue raising interest rates. Since Friday’s dismal retail sales reading, UK government bond yields – often an indicator of rate hike bets – have tumbled. Yields on the UK ten-year Gilt have fallen by 0.215%.

This has dragged the Pound (GBP) lower against the Euro (EUR).

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Snaps Losing Streak 

The Pound Euro (GBP/EUR) exchange rate is inching higher this morning amid a quiet day for data on both sides. 

Although the Pound (GBP) is firming, the UK’s cost-of-living crisis remains a pressing concern for GBP investors. As a result, Sterling’s gains seem severely limited. 

Pound (GBP) Edges Up but Remains Muted 

The Pound is edging higher against the Euro (EUR) this morning, although the GBP/EUR exchange rate remains close to its lowest level since the start of this month. 

Cost-of-living concerns have weighed heavily on Sterling in recent days. Data on Friday revealed that the income crunch has hammered UK retail sales, while a report yesterday from the Office for National Statistics (ONS) contained alarming figures showing just how widely the income pinch is affecting UK households. 

The lack of data so far today seems to be benefitting GBP, only any upside is likely limited. 

Euro (EUR) Softens amid Ukraine Crisis Fears 

Meanwhile, the Euro is ticking lower across the board this morning amid a lack of Eurozone data. With nothing on the calendar, attention turns instead to the war in Ukraine. 

Although Russia has scaled back its invasion, the war grinds on. The danger remains that the conflict could spill out into other countries, thereby expanding into a larger war. 

Russian Foreign Minister Sergei Lavrov said that, by arming Ukraine, Nato is effectively at war with Russia

‘Nato, in essence, is engaged in a war with Russia through a proxy and is arming that proxy.’ 

‘War means war’, Lavrov added. 

The Kremlin also warned that there is a ‘considerable’ risk of a nuclear third world war and that this risk ‘should not be underestimated’. 

Meanwhile, the war has shown some signs of broadening beyond Ukraine’s borders. Kyiv has reportedly attacked targets on Russian soil – a tactic backed by the UK – and two Russian radio towers have been destroyed in Transnistria, a breakaway region in Moldova. 

The Eurozone economy is particularly vulnerable to the conflict in Ukraine. Therefore, as the war drags on – or should it escalate – it is damaging the bloc’s economy. 

Pound Euro Exchange Rate Forecast: Movement Limited amid Lack of Data 

Amid the lack of data today, the Pound Euro pair could trade in a narrow range. 

That said, any escalations in the Russia-Ukraine war could put more downward pressure on the Euro, thereby boosting GBP/EUR. 

Looking further ahead, tomorrow’s latest consumer confidence score from Germany could also cause some movement. Economists expect consumer morale to edge lower heading into May. But could it surprise to the upside, as with yesterday’s German data? 

Samuel Birnie

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