Pound Euro (GBP/EUR) Exchange Rate Narrows Following Post Powell Slump

Pound Euro (GBP/EUR) Exchange Rate Narrows Following Post Powell Slump

(Article updated 08:50, 8/3/23) The Pound Euro Exchange Rate has levelled out this morning, following an overnight slump.

Federal Reserve Chair Jerome Powell’s testimony continued to blight GBP/EUR, as the strengthening US Dollar and allusion to faster, higher rate hikes struck the market mood.

Prompting risk averse trade, the risk-sensitive Pound especially suffered. Similarly, due to the ‘Greenback’s strength, the Euro struggled on that pairing’s negative correlation.

This morning, downbeat German data appears to be keeping the common currency on the defensive. Between a lower-than-forecast set of retail sales data but an incredibly strong set of industrial production data, EUR lacks direction.

At the time of writing, GBP/EUR is trading around €1.1224, showing little movement from today’s opening rates.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Falls as Risk-Averse Trade Dents GBP

(Article updated 16:35, 7/3/23) The Pound Euro (GBP/EUR) exchange rate is falling this afternoon, following the beginning of Federal Reserve Chair Jerome Powell’s testimony.

During his testimony to the US Congress, Powell indicated the potential for faster and higher interest rate hikes. With the Fed needing to essentially force the US economy into recession by hiking rates, this has a knock on impact of the wider global economy.

Because of this, risk appetite across the session appears to be souring, prompting weakness in the increasingly risk-sensitive Pound.

However, the Euro’s upside is limited by its negative correlation with the US Dollar. As the ‘Greenback’ strengthens, the common currency is likely to weaken.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rangebound as EU Inflation Expectations Fall

The Pound Euro (GBP/EUR) exchange rate is trading flatly this morning, as falling inflation expectations weigh on EUR.

At the time of writing, GBP/EUR is trading around €1.1261, showing little movement from the morning’s opening rates.

Euro (EUR) Undermined by Falling Inflation Expectations

The Euro (EUR) is trading weakly this morning, following the latest European Central Bank (ECB) Consumer Expectations survey.

The survey showed that EU consumers expectations for inflation over the next 12 months had declined. This could be weighing on the single currency by prompting EUR investors to dial down their bets on higher ECB rate hikes.

However, the common currency may be being underpinned by forecast-beating German factory orders. While they showed a sharp decline, the data printed at 1%, far above the expected -0.9%.

With the bloc’s largest economy still showing signs of life, EUR investors may be moderately cheered by the news.

Furthermore, ECB rate hike bets are likely remaining a factor in preventing the Euro from substantial losses. Yesterday, ECB policymakers delivered hawkish speeches, with Robert Holzmann calling for further 50bps hikes. This allowed the Euro to make firm gains, and could be continuing to cushion the common currency.

Pound (GBP) Muted amid Domestic Headwinds

The Pound (GBP) is struggling for clear direction this morning, as a lack of impactful data leads investors to focus on domestic headlines.

The cost-of-living crisis remains a continued presence in UK headlines. This morning, the British Retail Consortium (BRC) warned that UK consumers had continued to cut back their spending.

Paul Martin, the UK Head of Retail at KPMG, stated:

‘Consumers are continuing to hold back on non-essential spending with sales of clothing, footwear and accessories – which have been very influential in spending for many months – continuing to decline in February.’

With the UK’s economy reliant on consumer spending in times of hardship, the bleak news may have sapped sentiment for Sterling.

However, hawkish comments from Bank of England (BoE) policymaker Catherine Mann could be serving to cushion Sterling.

Mann stated that ‘more needed to be done’ in regards to rate hikes, which could be bringing modest rate hike bets.

Pound Euro (GBP/EUR) Exchange Rate Forecast: German Data to Boost EUR?

Looking ahead for the Euro, tomorrow brings a duo of key German data releases, which may impact the single currency.

Industrial production and retail sales data for February are both forecast to show a sizeable increase from January. If they print as expected, the Euro could rally as the bloc’s largest economy shows signs of strength.

Furthermore, a speech from European Central Bank President Christine Lagarde could provide a further boost. President Lagarde usually takes a hawkish stance on inflation, and continuing along these lines may increase rate hike bets.

For the Pound, a lack of data releases means that Sterling may remain vulnerable to domestic headwinds.

John Mulcahey

Contact John Mulcahey


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