Pound Euro (GBP/EUR) Exchange Rate Continues to Fluctuate Sideways
(Updated 16:10, 23/02/23) The Pound Euro (GBP/EUR) exchange rate has continued to waver in a narrow range today, as both currencies faced mixed factors.
This morning, hawkish comments from Bank of England (BoE) rate setter Catherine Mann may have provided the Pound (GBP) with some support. Mann argued for ongoing interest rate rises, saying that persistent inflation was the biggest risk to the UK economy and that it would be better to err on the side of caution by tightening too much, rather than not enough.
However, GBP investors were rather disappointed that the UK is yet to announce a new deal with the EU on the contentious Northern Ireland Protocol. Hopes about a resolution to the post-Brexit trade row supported Sterling earlier in the week. However, that optimism is fading.
Meanwhile, a surprise uptick in Eurozone core inflation last month prompted bets on more action from the European Central Bank (ECB).
This upside was capped by EUR’s negative correlation to a stronger US Dollar (USD). Russia-Ukraine worries also applied some pressure to the single currency.
At the time of writing, GBP/EUR is trading at €1.1347, having wavered marginally lower since the European session started.
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Pound Euro (GBP/EUR) Exchange Rate Wobbles amid BoE and ECB Bets
The Pound Euro (GBP/EUR) exchange rate wavered this morning as markets awaited potentially impactful calendar events from the UK and the Eurozone. At the time of writing, markets are digesting hawkish Bank of England (BoE) comments and a mixed inflation rate reading from the Eurozone.
GBP/EUR is currently trading at around €1.1361, having wavered sideways since the start of the day’s session.
Pound (GBP) Bounces on Hawkish BoE Comments
The Pound (GBP) initially slipped against the Euro (EUR) this morning, as the tailwinds from Tuesday’s stellar services PMI faded further.
However, hawkish comments from the Bank of England’s Catherine Mann lent Sterling some support.
Mann is one of the more hawkish voices at the BoE, and her speech at the Resolution Foundation this morning cheered GBP bulls.
The policymaker set out her case for ongoing interest rate rises, arguing that the risk of under-tightening outweighed the risk of over-tightening.
She also signalled that there would be more rate hikes at future meetings, challenging the narrative that the BoE was close to the end of its hiking cycle. Mann said the bank needed to ‘stay the course’ and that a dovish pivot ‘is not imminent.’
These remarks helped to raise BoE rate hike bets. However, as Mann is a known hawk, her comments were unsurprising. Therefore, the upside potential seems limited.
Euro (EUR) Subdued as Markets Digest Eurozone CPI
Meanwhile, the Euro is also struggling for a clear direction following a mixed Eurozone CPI release.
The bloc’s final headline inflation rate for January printed at 8.6%, as expected, down from 9.2% in December as inflation continues to rapidly cool.
However, the final core inflation rate – which strips out volatile items, including energy, food, alcohol, and tobacco – was revised higher. Core inflation accelerated to a fresh record high of 5.3% last month – up from 5.2% the previous month and above preliminary estimates of 5.2%.
At the time of writing, the Euro is softening somewhat. However, the rise in core inflation could inspire an upside as markets bet on sustained tightening from the European Central Bank (ECB).
Two factors that may be pressuring EUR could be the currency’s negative correlation to a stronger US Dollar (USD) and Russia-Ukraine worries.
Tomorrow will mark one year since Russia launched its full-scale invasion of Ukraine, and analysts expect another large offensive to coincide with the anniversary. As a result, EUR investors may be wary today.
Pound Euro Exchange Rate Forecast: More Fluctuations Ahead?
Looking ahead, the Confederation of British Industry’s (CBI) latest distributive trades survey could impact the Pound. Economists are expecting an improvement in retail sales this month, which could lend Sterling some support. However, with the score set to remain in negative territory, the Pound could find any upside limited.
News about the Northern Ireland Protocol may also affect GBP exchange rates. Speculation continues to swirl over when a new deal will be announced, as the UK and EU seem to be on the cusp of an agreement.
Any new suggestions that a deal is imminent could support Sterling. On the other hand, uncertainty, setbacks or political opposition to the deal could mute the Pound.
Meanwhile, Eurozone data is in short supply for the remainder of today’s session. As a result, Russia-Ukraine news could affect EUR.