Pound Euro (GBP/EUR) Exchange Rate Climbs amid UK Higher Inflation Expectations
(Updated 09/12/22 16:28)
The Pound Euro (GBP/EUR) exchange rate found fresh impetus as the day went, climbing close to its position from the beginning of this week. A risk-on impulse may have boosted the currency
The latest public inflation expectations may have also bolstered the exchange rate today. The British public’s expectations for inflation over the next two years rose to its highest level in nearly a decade. This may have prompted increased bets on a 50bps interest rate hike from the Bank of England (BoE) which may have also pushed GBP/EUR higher.
At time of writing the GBP/EUR exchange rate is at around €1.1670, which is up roughly 0.7% from this morning’s opening figures.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly amid Risk-On Mood
The Pound Euro (GBP/EUR) exchange rate is trending sideways today amid competing central bank rate hike bets. A risk-on mood may be helping limit any losses for GBP/EUR, however.
The GBP/EUR exchange rate forecast is at around €1.1601, virtually unchanged from this morning’s opening figures.
Pound (GBP) Firms as UK Inflation Expectations Rise
The Pound (GBP) is ticking higher today. The currency may be seeing support from the BoE rate hike bets ahead of next week’s meeting.
The BoE is widely expected to hike interest rates by 50bps after inflation hit a 41-year high of 11.1% in October.
Investec economist Philip Shaw said:
‘To our minds, another 50 basis point increase looks likely. The BoE has made it pretty clear that inflation is too high. It’s concerned about the tightness of the labour market.’
Recent reports have indicated that the central bank’s policymakers remain split over the size of the hike, however.
The release of the latest inflation expectations by the BoE may also be fueling rate hike bets today. The UK public’s expectation for inflation in the next two years rose to 3.4% in November.
Euro (EUR) Gains amid ECB Rate Hike Bets
The Euro (EUR) is firming against its peers despite a return of global risk appetite. Bets on a 50bps interest rate hike from the European Central Bank (ECB) at their next meeting could be bolstering EUR today.
A poll released by Reuters today indicated that 51 of the 60 economists surveyed favoured a 50bps rate hike from the ECB.
Markets had been recently pricing in an even larger 75bps from the ECB, although evidence of cooling inflation in the Eurozone has seen investors pare back those bets.
Carsten Brzeski, global head of macro at ING, said:
‘Whether they like it or not, the worsening economic backdrop has brought many central bankers closer to the moment of slowing tightening efforts, and eventually even pausing rate hikes.’
GBP/EUR Exchange Rate Forecast: Will BoE Hikes Rates as Forecast?
Looking to the week ahead for the Pound, a forecast expansion in the UK’s economy could boost the currency on Monday. October’s GDP figures are expected to print a rise 0.4%.
On Tuesday, a predicted sharp rise in November’s claimant count change figures could boost GBP amid signs of a tight labour market.
An expected downturn in November’s inflation could have a mixed effect on GBP if Wednesday’s figures print as forecast. Cooler inflation figures could help ease concerns over the impact of soaring prices. On the other, the data could see markets pare back BoE rate hike bets which could pull Sterling lower.
The BoE’s interest rate decision on Thursday is likely to be the most significant data release for the Pound next week. The possible damaging effect of the rate hike on the UK’s economy could cap any gains.
Finally for the Pound, a slowdown in November’s retail sales could also dent confidence in the Pound.
On Tuesday, a downturn in Eurozone economic sentiment could keep pressure on EUR if figures print as forecast.
On Thursday, the December interest rate decision from the European Central Bank could see EUR edge lower if the ECB hikes rates by 50bps as forecast.
If the ECB surprises with a 75bps rate hike however, EUR could climb off the back of the hawkish pivot. Investors will also be keenly awaiting the central bank’s forward guidance.
Finally for the Euro, Friday’s PMI figures could see the currency pare back any of Thursday’s gains if the sectors contract as forecast.