Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly Despite BoE Rate Hike Bets

Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Mixed ECB Messages

(Updated 16:45 25/11/22)

The Pound Euro (GBP/EUR) exchange rate continued to trade in a narrow range today. The currency pair saw its gains capped by a poor outlook for the UK’s economy as well as fears over the country’s cost-of-living crisis.

The exchange rate found support from persistent Bank of England (BoE) interest rate hike bets, however. Mixed messages from the European Central Bank (ECB) over their own pace of policy tightening also kept losses limited for GBP/EUR.

ECB policymakers continued to present diverging paths for the central bank. Policymakers such as Philip Lane signalled that the arguments for a 75bps rate hike were ‘no longer there’. On the other hand, hawkish board member Isabel Schnabel argued for further aggressive hikes.

Speaking on the dilemma for investors ahead of the ECB’s December meeting, Danske Bank economist Piet Christiansen said:

‘The hawks have been in the driver’s seat all year and it will come down to the November inflation print. If core inflation is higher – to me core is more significant then the doves will have a difficult time arguing for a slowdown.’

At time of writing the GBP/EUR exchange rate was at around €1.1623, virtually unchanged from this morning’s opening figures.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways amid Central Bank Rate Hike Bets

The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. The pair is struggling to make ground amid gathering storm clouds for the UK retail sector. Bets on further interest rate hikes from the European Central Bank (ECB) may also be limiting gains for GBP/EUR.

On the other hand, the exchange rate may be seeing losses limited by bets on a 50bps rate hike from the Bank of England (BoE).

At time of writing the GBP/EUR exchange rate is at around €1.1625, which is virtually unchanged from this morning’s opening figures.

Pound (GBP) Slides amid Poor Outlook for UK Retail Sector

The Pound (GBP) is slipping today amid a risk-off trading sentiment. The UK’s persistently poor outlook may also be weighing on Sterling.

The outlook for the UK’s retail sector is grim today despite the promise of widespread Black Friday discounts. Strike action by Royal Mail is also expected to impact profits for the sector.

The announcement of industrial action by NHS nursing staff could also be keeping pressure on Sterling today. The strikes are expected to take place over two dates in December.

Sterling could be underpinned by Bank of England (BoE) rate hike bets, however. Hawkish comments from BoE policymaker Catherine Mann and a sharp decline in UK government bond yields has fuelled further rate hike bets.

Euro (EUR) Edges Higher as German Data Surprises to Upside

The Euro (EUR) is ticking higher against its peers today. The single currency could be seeing gains amid a mild risk-off impulse in the markets, as well as a weaker US Dollar (USD).

EUR may also be finding support from bets on an aggressive rate of policy tightening from the European Central Bank (ECB).  Thursday saw the release of the central bank’s latest meeting minutes that signalled further rate hikes despite recession risks.

Hawkish comments from ECB board member Isabel Schnabel on Thursday added to this speculation.

Better-than-forecast German consumer sentiment could also be bolstering EUR today. December’s reading barely changed as the country’s energy support measures helped to ease fears of soaring fuel costs.

An upward revision in Germany’s third quarter GDP growth figures could also be pushing the Euro higher today.

GBP/EUR Exchange Rate Forecast: Will Slip in Eurozone Inflation see Markets Pare Back ECB Rate Hike Bets?

Looking to the coming week for the Euro, an uptick in Eurozone economic sentiment on Tuesday could lend support to the single currency if the data prints as forecast.

Also on Tuesday, a slip in Germany’s latest inflation figures could see a pullback in ECB rate hike bets. This may in turn cause EUR to slip.

Wednesday’s Eurozone inflation figures could have a similar effect on the Euro if they fall as expected.

On Thursday, a drop in Germany’s November retail sales could also weigh on the single currency. The final reading on November’s manufacturing PMI for Germany and the Eurozone could also see EUR if it confirms a contraction.

On the other hand, the Euro could be underpinned by the latest Eurozone unemployment data on Thursday. November’s unemployment is expected to remain at a record-low of 6.6%.

A forecast slip in Eurozone PPI on Friday could undermine market bets on further rate hikes, however.

For the Pound, the latest distributive trades figures could pull the currency lower on Monday if they fall as expected.

On Thursday, the final reading of November’s PMI for the manufacturing sector could also weigh on Sterling.

Gareth Monk

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