Pound Euro (GBP/EUR) Exchange Rate Rangebound amid ECB Rate Hike Bets

(Updated 16:41 13/05/22)

The Pound Euro (GBP/EUR) exchange rate continued to trade within a narrow range today. Hawkish comments continued to underpin the Euro (EUR), although developments in the Ukraine-Russia conflict held off any significant bets from investors.

At time of writing the GBP/EUR exchange rate is at around €1.1752, virtually unchanged from this morning’s opening figures.

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways Despite ECB Hawkishness

The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. The currency pair has remained changeable so far. On the one hand, major gains are being limited by a poor outlook for the UK economy weighing on the Pound (GBP). On the other, the GBP/EUR pair is likely being underpinned by a hawkish stance from the European Central Bank (ECB).

At time of writing the GBP/EUR exchange rate is at around €1.1743, virtually unchanged from this morning’s opening figures.

Euro (EUR) Slips Despite ECB Rate Hike Signals

The Euro (EUR) is slipping against many of its rivals today. Poor industrial performance and the Ukraine-Russia conflict are keeping EUR suppressed. Expectations of a rate hike from the ECB  may be helping to bolster the single currency, however.

Speaking on Wednesday, ECB President Christine Lagarde gave strong signals that the central bank would be announcing a rate hike ‘a few weeks’ into the third quarter. Inflation in the Eurozone has continued to climb and hit 7.5% last month. Multiple ECB policymakers have also spoken in favour of a rate hike.

ECB board member Joachim Nagel said:

‘If both the incoming data and our new projection confirm this view in June, I will advocate a first step towards normalising ECB interest rates in July.’

A drop to Eurozone industrial production in July may be limiting upward movement for the single currency, however. Industrial production fell to -1.8% from 0.5% in the previous month.

Pound (GBP) Drops as Recession Fears Grow

The Pound (GBP) has fallen against the majority of its rivals today. Poor growth figures earlier this week have increased fears of a recession, which may be weighing on Sterling. Fears of a potential trade war with the EU over the Northern Ireland Protocol is also likely harming confidence in GBP.

The UK’s economy surprised analysts by contracting in March amid the country’s cost-of-living crisis. Households limited spending on big-ticket items as energy and petrol costs soared. The figures increased pressure on the UK government to provide additional support, and also heightened fears the country could fall into an early recession.

Ed Monk, associate director at Fidelity International, said:

‘Any momentum the UK economy had as it emerged from the pandemic appears to be ebbing away. Numbers can be revised but it’s clear the UK faces a serious fight to avoid recession this year.’

GBP/EUR Exchange Rate Forecast: Will UK Inflation Reach Fresh Highs?

Looking ahead to the next week for the Pound (GBP), a forecast unchanged unemployment rate on Tuesday could help boost the currency amid signs of a tight labour market.

An expected rise to the UK’s rate of inflation on Wednesday could also boost Sterling. The figures could increase bets on the currency over the potential for more rate hikes from the BoE.

A recovery to April’s If retail sales on Friday could also push the Pound higher. Gains for the currency could be limited by the UK’s gloomy economic outlook however, as well as Brexit concerns.

For the Euro (EUR), the Eurozone’s balance of trade is expected to swing sharply into surplus on Monday which help lift the single currency.  

On Wednesday, an expected uptick to Eurozone inflation could cause EUR to edge higher amid bets of an imminent rate hike from the ECB. Additionally, a non-monetary policy meeting from the ECB could provide some insight into their forward policy.

Finally, PPI figures for Germany in Friday could bolster confidence in the Euro should prices ease as forecast.

Gareth Monk

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