Pound Euro (GBP/EUR) Exchange Rate Drops as USD Weakness Boosts EUR
(Updated 17:00, 24/8/22) The Pound Euro (GBP/EUR) exchange rate tumbled this afternoon, hitting a two-day low, as a drop in the US Dollar (USD) boosted the Euro (EUR).
EUR is negatively correlated with USD so when the latter falls, the former tends to rise.
Today, more poor US economic data dampened expectations for further Federal Reserve interest rate rises, thereby denting the US Dollar and subsequently boosting the Euro.
Meanwhile, growing fears around the UK economy hurt the Pound (GBP), abruptly ending this week’s winning streak for Sterling.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Reverses Upside amid Energy Crisis Fears
(Updated 12:00, 24/8/22) The Pound Euro (GBP/EUR) exchange rate has reversed its earlier upside as rising gas prices fuel fears about the UK’s energy crisis.
Today, UK gas prices rose to a new all-time high, exceeding the record costs they reached back in March.
Soaring energy prices have hammered the UK economy, driving up inflation and exacerbating the cost-of-living crisis. Today’s surge has spooked GBP investors, erasing gains made earlier today.
The Eurozone is also facing an energy crisis, with gas prices at a record high. However, today’s jump in gas markets has seen a much steeper increase in British prices. At the time of writing, UK gas prices are up 10.22% on the day, while EU prices are up 5.56%. As a result, GBP/EUR has slipped lower.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Firms as Traders Expect More BoE Rate Hikes
The Pound Euro (GBP/EUR) exchange rate is ticking higher this morning as markets continue to price in another 50-basis-point interest rate rise from the Bank of England (BoE).
At the time of writing GBP/EUR is trading at €1.188, close to a one-week high.
Pound (GBP) Buoyed by BoE Rate Rise Bets
The Pound (GBP) strengthened against the Euro (EUR) this morning, extending this week’s steady rally, as expectations of another half-point rate hike from the BoE boost the UK currency.
UK government bond yields – often an indicator of rate hike expectations – continued their recent climb today, hitting a fresh two-month high.
Financial markets expect the British central bank to raise rates to 4% next year to tackle soaring inflation. Last week, the UK CPI exceeded forecasts, jumping to 10.1%.
More recently, the UK’s comparatively good PMI results (which were far better than those of the US and the Eurozone) may have helped to spur rate rise bets.
In addition, hints that the government could be considering a huge spending package to insulate the UK economy against surging energy bills may also be increasing expectations of tighter monetary policy.
How much we end up borrowing is hugely uncertain because future energy prices are. But £100bn/2 yrs is eminently plausible given 1) we're £30bn+ in already 2) lots more will be required given the catastrophe to come 3) no sign of solidarity taxes that are alternative to borrowing https://t.co/mGGDEJuLzK
— Torsten Bell (@TorstenBell) August 23, 2022
As the government uses fiscal policy to help alleviate the income crunch, the BoE will likely try to balance it out by taking rates higher. The necessity for significant government spending is becoming increasingly apparent, and this may be contributing to market expectations for interest rates to keep on rising.
Euro (EUR) Muted amid Lack of Data
Meanwhile, the Euro is muted today amid a lack of data. With no notable economic releases from the Eurozone today, EUR investors are left to reflect on yesterday’s PMI results which, though mixed, were generally downbeat.
In addition, the Euro’s negative correlation to the US Dollar (USD) could be pressuring the single currency today. A risk-off market mood is supporting the safe-haven USD, which in turn is weighing on EUR.
Pound Euro Exchange Rate Forecast: Domestic Factors in Focus
Looking ahead, UK and Eurozone data remains thin on the ground for the rest of the session. Therefore, other factors could drive most movement in the Pound Euro pair.
For the Pound, investors may focus on the current cost-of-living crisis and what fiscal support the government may bring in. Any fresh warnings about the magnitude of the crisis and its impact on the UK economy could hurt Sterling.
Meanwhile, the Euro could trade in relation to its negative correlation with the US Dollar. This afternoon, the latest US durable goods orders figures are due out. Following yesterday’s dismal PMIs, USD investors may be hoping for a stronger result to help renew Federal Reserve rate rise bets. Such a result could hurt EUR.