GBP/EUR Exchange Rate Bolstered by Sunak Optimism
(Updated: 16:05, 25/10/22) The Pound Euro exchange rate is pushing higher this afternoon. The pairing passing the €1.15 barrier after Rishi Sunak became Prime Minister.
GBP investors appear hopeful that Sunak will make UK politics boring again, and help restore UK fiscal and political credibility.
Sterling’s gains accelerated as markets appeared receptive to Sunak’s cabinet reshuffle, which saw a number of prominent Liz Truss appoints sacked.
Looks like 11 Sunak sackings, including 3 hardcore Boristas (Berry, Malthouse, Mogg), 1 devoted Lizite (Clarke), and 7 drive-by shootings for various reasons, including perceived disloyalty to Sunak and own goals (Morton, Buckland, Brandon Lewis, Sharma, Jayawardena, Smith, Ford)
— Robert Peston (@Peston) October 25, 2022
Meanwhile, the Euro’s losses have been tempered by its negative correlation with the US Dollar (USD), which is trading with notable losses this afternoon.
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Pound Euro Exchange Rate Bolstered by German IFO Index
The Pound Euro (GBP/EUR) exchange rate is ticking higher this morning. As Germany’s latest business confidence index stokes recession concerns.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1471. Up roughly 0.3% from this morning’s opening rate.
Euro (EUR) Slides as German Business Sentiment Deteriorates
The Euro (EUR) is on the defensive this morning, following the publication of Germany’s latest IFO business climate index.
October’s index fell from an upwardly revised 84.4 to 84.3. Beating forecasts it would slide to 83.3 but still striking its worst levels since May 2020.
The index highlighted the challenges posed by surging inflation and the negative impact this is having on growth.
Firms expect Germany’s economy to shrink by 0.4% in the fourth quarter. Plunging Germany into a recession following an expected 0.2% contraction in Q3.
Carsten Brzeski, Global Head of Macro for ING Research comments:
‘The gradual slide into recession continues. Companies and households are increasingly suffering under higher energy invoices and ongoing high inflation, adjusting consumption and investments. The government’s latest support package, if not implemented retroactively, will be too little too late to prevent a winter recession.’
Pound (GBP) Steady as Rishi Sunak to Become PM
The Pound (GBP) is holding its ground so far this morning as Rishi Sunak is set to become the UK’s next Prime Minister.
GBP investors remain hopeful Sunak will help to stabilise markets. Although there are already some warnings over Sunak’s potential policy direction.
The Confederation of British Industry (CBI) has warned the new PM against pursuing an austerity ‘doom loop’.
Speaking to the BBC, the head of the CBI, Tony Danker, said:
‘The 2010s began with some austerity and were then ensued with very low growth, zero productivity and low investment. It wasn’t a successful strategy for growth.
‘We’re going to find out on Monday that if all there is is tax rises and spending cuts and there’s nothing in there about growth the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you’ve got no growth.’
Sunak is set to become PM after meeting with the King later this morning. GBP investors will be keeping a close eye on who he appoints to his cabinet for any hints as to his government’s policy priorities.
Pound Euro Exchange Rate Forecast: Will a 75bps ECB Hike Propel EUR Higher?
The European Central Bank’s (ECB) latest interest rate decision may act as a key catalyst of movement in the Pound Euro (GBP/EUR) exchange rate later this week.
Consensus estimates currently predict the ECB will opt for another 75 basis point rate hike this month.
However, with the hike already largely priced in by EUR investors the focus may be on the bank’s forward guidance.
If the ECB signals more aggressive rate hikes are to come the Euro may strengthen. On the other hand, a gloomy outlook for the Eurozone economy could cap demand for the single currency.
In the meantime, the release of the CBI’s latest business optimism index could drag on the Pound later this morning. Consensus estimates predict the outlook for the fourth quarter will have continued to deteriorate.