Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Choppy Trade

Pound Euro (GBP/EUR) Exchange Rate Zigzags, Moving Sideways Overall

(Updated 16:00, 11/5/22) The Pound Euro (GBP/EUR) exchange rate weathered some stormy trade today to move sideways overall.

Putting pressure on Sterling was a renewal of tensions around the Northern Ireland protocol. As the dispute comes to the fore once again, there are worries that it could sour relations between the UK and EU at a crucial time.

Despite this, the Pound (GBP) has shown some surprising resilience. GBP/EUR has fluctuated, but moved sideways overall.

The US CPI also caused some sharp movement in the Pound Euro pair, and indeed throughout currency markets. Year on year, US inflation edged lower in April, although it did come in higher than expected. The US Dollar (USD) spiked in response before slumping back down, causing a temporary dip in GBP/EUR.

At the time of writing, the Pound Euro pair is trading at around €1.17, virtually unchanged from the open of today’s European session.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rises despite Brexit Fears

The Pound Euro (GBP/EUR) exchange rate is wavering higher today, despite renewed Brexit tensions, as a risk-on tilt in European markets boosts the risk-sensitive Pound (GBP).

Meanwhile, the Euro (EUR) is lagging behind as the looming US CPI causes some hesitancy among investors.

Pound (GBP) Firms amid Bullish Market Mood

The Pound has wavered higher against the Euro today thanks to some risk-on trade, despite renewed concerns about the Northern Ireland protocol.

Yesterday The Times reported that Boris Johnson may be planning to scrap the protocol as early as next week. The Queen’s speech contained a veiled reference to the plans. Delivering the speech yesterday, Prince Charles said:

‘The continued success and integrity of the whole of the United Kingdom is of paramount importance to Her Majesty’s government, including the internal economic bonds between all of its parts.’

The mention of ‘internal economic bonds’ relates to the Irish Sea Border caused by the NI protocol – a measure that unionists see as unacceptable.

If the UK were to tear up parts of the protocol, the EU would likely retaliate. Some fear this could then escalate into a full-blown trade war, further damaging the UK economy.

Despite these worries, Sterling is strengthening today. A sharp rise in risk appetite, as evident in equity markets, is supporting the UK currency. At the time of writing, the FTSE 100 and STOXX 600 are up by 1.1% and 1.2%, respectively.

Euro (EUR) Struggles to Rise despite Hawkish ECB Comments

Meanwhile, the Euro is also rising against most of its peers, although it is slipping against GBP.

This morning, investors paid close attention to a speech by European Central Bank (ECB) President Christine Lagarde.

With the ECB striking a more hawkish tone in recent weeks, markets are beginning to price in earlier rate rises from the central bank.

Lagarde is one of the more dovish figures in the Governing Council, and her comments have been far more measured than some of her colleagues’.

Today, Lagarde reiterated her view that the bank’s Asset Purchase Programme (APP) should end early in the third quarter of this year, which would then pave the way for the bank to begin raising interest rates.

Meanwhile, two other more-hawkish policymakers have had their say. ECB policymaker and German central bank chief Joachim Nagel once again argued for a rate lift-off in July. Bostjan Vasle, Governor of the Slovenian central bank, also argued for quicker action to tame Eurozone inflation. Vasle said:

‘What started as a one-off shock has now become a more broad-based phenomenon. When the circumstances change, the policy response must follow’.

While these comments seem to be supporting the single currency, EUR investors may be hesitant ahead of the US CPI this afternoon, allowing a strengthening Pound to gain ground.

Pound Euro Exchange Rate Forecast: UK GDP to Trigger a Pound Sterling Sell-Off?

Looking ahead, it’s unclear whether GBP/EUR will be able to sustain its upside. Sterling faces headwinds from Brexit, the UK economy, and pared-back bets for Bank of England (BoE) rate hikes. Will the Pound shed some gains later on?

The US CPI this afternoon could cause some movement. Traders may be taking cues from the inflation rate reading to gauge how aggressively the Federal Reserve could raise interest rates. If US inflation overshoots, a jump in USD could put pressure on EUR.

Turning to tomorrow, the UK’s latest GDP data could cause significant headwinds for Sterling. Forecasters expect the UK economy to have stalled in March – another sign that the country may be heading towards economic stagnation and surging inflation.

Samuel Birnie

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