GBP/EUR Exchange Rate Consolidates Gains as Ukraine War Approaches First Anniversary
(Updated: 10:30, 22/02/23) The Pound Euro (GBP/EUR) exchange rate looks to consolidate its recent gains this morning, trading close to its best levels since the start of February.
The Euro is struggling to offset the Pound’s recent strength amid concerns over Russia’s next moves in Ukraine ahead of what could be a turbulent anniversary of the conflict.
Also limiting the EUR demand this morning is Germany’s latest IFO Business Climate Index. February’s index fell short of expectations, printing at 91.1 versus a forecast rise to 91.4.
Sentiment among German businesses rose for a 5th consecutive month on a brighter outlook BUT less than expecetd. Ifo Business morale rose to 91.1 in Feb from 90.1 in Jan. Ifo Expectations Index rose to 88.5 vs 88.4 exp. But Ifo Current Assessment Index dropped to 93.5 vs 95 exp. pic.twitter.com/c33CgWQIbu
— Holger Zschaepitz (@Schuldensuehner) February 22, 2023
Meanwhile, Sterling continues to draw support from Bank of England (BoE) rate hike bets. Analysts now expect UK interest rates to peak at 4.55%, a 15bps rise from the start of the week.
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GBP/EUR Exchange Rate Remains Buoyed by UK PMI Surprise
(Updated: 15:45, 21/02/23) The Pound Euro (GBP/EUR) exchange rate continues to trade above €1.13 this afternoon, with the pairing having retained the bulk of this morning’s gains after the UK’s latest PMIs smashed expectations.
February’s stronger-than-expected PMIs are fuelling Bank of England (BoE) rate hike bets on the assumptions the UK economy’s surprisingly resilience will encourage the BoE to keep tightening policy and bring inflation under control.
The pound soars as traders raise bets on Bank of England rate hikes, after British companies unexpectedly reported the first growth in seven months https://t.co/OdoGWTqEJq pic.twitter.com/VgB0kRB3XX
— Bloomberg UK (@BloombergUK) February 21, 2023
At the same time, the Euro is facing headwinds this afternoon in the wake of comments by European Central Bank (ECB) President Christine Lagarde.
Lagarde suggested the bank hasn’t seen any signs of a wage-price spiral in the Eurozone. Undermining expectations for more ECB rate hikes past its March meeting.
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Pound Euro Exchange Rate Strengthens on Upbeat PMIs
The Pound Euro (GBP/EUR) exchange rate is rallying this morning as GBP investors welcome some upbeat UK PMIs.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1345. Up roughly 0.7% from this morning’s opening rate.
Pound (GBP) Strengthens as UK Service Sector Returns to Growth
The Pound (GBP) is apricating against the Euro (EUR) and the majority of its other peers so far this morning.
This uptick in Sterling comes on the back of the UK’s latest PMIs. February’s preliminary figures report the UK’s vital services sector unexpectedly returned to growth for the first time since September. While manufacturing sector activity also proved stronger-than-expected.
🇬🇧#PMI data signalled that the #UK private sector climbed back into growth territory in February (Feb: 53.0; Jan: 48.5). The rebound was achieved across both sectors and accompanied by a further cooling in inflationary pressures. Read more: https://t.co/Gb8jPPrB7I pic.twitter.com/NIOwvbbOgS
— S&P Global PMI™ (@SPGlobalPMI) February 21, 2023
GBP investors were pleasantly surprised by the above forecast figures, which are helping to ease UK recession fears.
Dr John Glen, CIPS Chief Economist commented:
‘The sun broke through in February after six months of gloom with a swift and significant jump in output for private sector business. Supplier delivery times improved at the fastest rate since June 2009 for manufacturers as the marketplace showed signs of some recovery.’
Signs of a surprisingly resilient UK economy are also bolstering the Pound on the back of more hawkish Bank of England (BoE) interest rate expectations. The apparent rebound in UK private sector activity could provide the BoE will more headroom to continue hiking rates.
Euro (EUR) Subdued as Putin Delivers Update on Ukraine War
The Euro (EUR) is struggling to find support this morning amid a sense of caution as Russian President Vladimir Putin delivers his first State of the Nation address since the start of the war in Ukraine.
Putin’s speech has involved a lot of sabre rattling over the war and vilifying the West’s role in the conflict.
However, Putin has so far refrained from making any big announcements which would escalate the conflict, much to the relief to EUR investors.
The speech is largely overshadowing the publication of the Eurozone’s own PMIs. February’s figures reported growth in the bloc’s private sector also outperformed forecasts.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
‘Business activity across the eurozone grew much faster than expected in February, with growth hitting a nine-month high thanks to resurgent service sector activity and a recovering manufacturing economy. February’s PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%.’
Williamson suggests signs of sticky inflation in the services sector is likely to encourage the European Central Bank (ECB) to continue tightening its monetary policy in the coming months.
Pound Euro Exchange Rate Forecast: Uptick in German Business Confidence to Buoy EUR?
Looking ahead to tomorrow, the Pound Euro (GBP/EUR) exchange rate may be influenced by the publication of German’s latest IFO business climate index.
Another improvement in business sentiment is likely to reflect positively on the Euro.
At the same time, the absence of any notable UK data may leave the Pound vulnerable to external forces. Could a cautious mood lead the increasingly risk-sensitive Sterling to give ground.