Pound Euro (GBP/EUR) Exchange Rate Recoups Losses amid Risk-On Mood and BoE Comments
(Updated 16:15, 8/11/22) The Pound Euro (GBP/EUR) exchange rate regained lost ground this afternoon as an upbeat turn in the market mood supported the increasingly risk-sensitive Pound (GBP).
The turnaround in risk sentiment came as the Republican Party is poised to make sweeping gains in the US midterm elections, which could lead to a divided government.
Stephen Innes of SPI Asset Management explains why this is cheering markets:
‘Gridlock cross-checks each party’s “worst impulses,” and less activist fiscal policy is conducive to lower market volatility. That could be particularly helpful in 2022 and 2023 to the extent it calms rates volatility, the principal sponsor of this year’s historic cross-asset malaise.’
In addition, US economic optimism declined more than forecast. This in turn helped to dampen Federal Reserve interest rate rise bets, which also contributed to a risk-on mood.
Meanwhile, Bank of England (BoE) Chief Economist Huw Pill signalled that more interest rate rises were on the way. Pill said that there is ‘still more to do’ in terms of bringing inflation down.
However, UK recession fears capped Sterling’s recovery.
As for the Euro (EUR), ongoing concerns about the Ukraine crisis put some pressure on the single currency.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Heads Lower amid Risk-Off Mood
The Pound Euro (GBP/EUR) exchange rate is retreating today as yesterday’s risk-on rally in the Pound (GBP) fizzles out. However, a muted Euro (EUR) is finding its gains capped.
At the time of writing, GBP/EUR is trading at around €1.1479, down slightly from an overnight high of €1.1505.
Pound (GBP) Softens following Yesterday’s Rally
The Pound is edging lower this morning, trimming some of yesterday’s impressive gains.
Monday saw Sterling rally, surging higher and recouping some of the losses suffered following the Bank of England (BoE) meeting last week.
The upside came as GBP enjoyed some dip-buying and an upbeat mood supported the increasingly risk-sensitive UK currency.
Today, however, the market mood is a little more cautious and Sterling is slipping against the safer Euro.
Meanwhile, news that food inflation continues to climb could be worrying GBP investors. UK consumers are downtrading when it comes to food items, shopping in bargain supermarkets and opting for cheaper own-brand products as the cost-of-living crisis squeezes budgets.
The latest data is a timely reminder of the UK’s dire economic situation.
Euro (EUR) Gains Capped amid Mixed Trade
Meanwhile, the Euro is somewhat subdued today as mixed factors play on the single currency.
Giving EUR a lift, policymakers from the European Central Bank (ECB) have made some hawkish comments this morning.
Andrea Enria said that the ‘Euro area banking sector would remain broadly resilient to a textbook 200 basis point interest rate shock.’ These comments imply more rate rises to come, while reassuring investors that the financial system can weather such hikes.
In addition, the ECB’s Joachim Nagel said: ‘large rate hikes are necessary’.
However, the Euro’s negative corelation to the US Dollar (USD) seems to be capping the upside. USD is regaining strength today as it recovers from a two-day losing streak, thereby putting pressure on the single currency.
Pound Euro Exchange Rate Forecast: Further Losses ahead for GBP/UER?
Looking ahead, Eurozone retail sales later this morning could boost EUR further. Economists expect sales in the bloc to have recovered by 0.4% in September, which could indicate resilient consumer demand.
As for the Pound, it may be influenced by comments from BoE Chief Economist Huw Pill. At the time of writing, Pill is currently delivering a speech. If he reiterates the dire outlook for the UK economy, or signals that the pace of interest rate rises must slow now that the UK is in a recession, Sterling could fall sharply.