GBP/EUR Surges on Tumbling Eurozone Bank Shares
(Updated 15/3/23, 12:00)
The Pound Euro (GBP/EUR) exchange rate is soaring this morning as the continued fallout from Silicon Valley Bank’s (SVB) collapse wreaks havoc on European bank shares. Despite reassurances that the impact would be minimal, investors are worried about contagion throughout the banking sector. Credit Suisse shares tumbled to a record low as they fell by 20%. Fears have now started to shift towards the European Central Bank (ECB) monetary policy. EUR investors have begun to doubt another jumbo rate amid the volatility in the banking sector.
At time of writing, the GBP/EUR exchange rate is around €1.1398, a 0.62% jump from this morning’s opening levels.
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GBP/EUR Trades Erratically as US Inflation Pares Rate Hike Bets
(Updated 14/3/23, 16:45)
The Pound Euro exchange rate is wavering in the wake of easing US inflation. The negative correlation the Euro shares with the US Dollar saw renewed strength as Federal Reserve rate hike bets were pared on softening headline CPI. However, concerns over the European Central Bank’s (ECB) own tightening cycle could be limiting gains.
The Pound remains resilient despite mixed employment data and uncertainty surrounding the Bank of England’s (BoE) own monetary policy.
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Pound Euro (GBP/EUR) Fluctuates as UK Pay Growth Slows
The Pound Euro exchange rate is trading narrowly after UK unemployment printed lower than expected, but pay growth also missed forecasts.
At time of writing, the GBP/EUR exchange rate is around €1.1354, relatively unchanged from this morning’s opening levels.
Pound (GBP) Undermined by BoE Rate Hike Pause
The Pound (GBP) is struggling for demand this morning in the wake of mixed employment data. Despite the unemployment rate coming in lower than expected, easing pay growth has tempered rate hike bets.
Jobs data for the UK, released this morning, showed that the labour market could be finally cooling. Wage growth, which the BoE closely monitors, finally slowed for the first time in a year. With expectations of the central bank pausing its interest rate hike cycle, the latest employment data could nudge the BoE to do just that.
Basic wages, excluding bonuses, increased by 6.5% compared to a 6.7% rise in the three months to December. This represents the first slowdown since late 2021. However, with total pay growth easing, in real-terms wages fell by 3.2%, the largest fall since 2009. Meanwhile, the unemployment rate was expected to climb modestly but came in unchanged at 3.7% for the fourth consecutive month. The rate also remains 0.3% below pre-pandemic levels.
With the Spring Budget tomorrow, Chancellor Jeremy Hunt is expected to announce measures to attract more people back to work. He said of the latest jobs data:
‘The jobs market remains strong, but inflation remains too high. Tomorrow at the budget, I will set out how we will go further to bear down on inflation, reduce debt and grow the economy, including by helping more people back into work.’
Euro (EUR) Supported by ECB Reassurance
Meanwhile, the Euro (EUR) is limiting its losses in the wake of Silicon Valley Bank’s collapse and the feared repercussions. ECB policymaker Yanis Stournaras said this morning that she doesn’t see any impact on Eurozone banks from SVB’s collapse.
Elsewhere, concerns are growing that a smaller rate hike could be on the cards from the ECB on Thursday. Analysts at ING predict that in light of the recent events in the US, a 25bps rate hike possibility could now be discussed, adding:
‘Our economics team does not see a very material risk of a 25bp hike this week and only expects recent market developments to affect the debate about the path beyond March, but should the ECB surprise with such a smaller move, it would entirely be due to financial risks as opposed to a more constructive view on inflation.’
Pound Euro Exchange Rate Forecast: ECB Rate Hike to Boost the Euro?
Looking ahead, the Pound Euro exchange rate could see drastic movement with the latest interest rate decision from the ECB. Expectations of another bold 50bps increase could send the Euro higher. Maintained hawkish comments from ECB policymakers have kept investors’ confidence high in anticipation.
Meanwhile, the Spring Budget could impact the Pound tomorrow. With Hunt unveiling the government’s spending and tax plans for the next year, investors will be hoping for strong economic growth plans and measures to boost the economy.