Pound Euro (GBP/EUR) Exchange Rate Slips as Inflation Data Boosts ECB Bets
(Updated 14:20, 30/03/23) The Pound Euro (GBP/EUR) exchange rate reversed its initial uptick this morning and began to head lower after new inflation data saw markets bet on more interest rate rises from the European Central Bank (ECB).
In the Eurozone, consumer inflation expectations surprised markets by ticking higher, with the associated index rising from 17.7 to 18.9, rather than falling to 16.
Later on, German inflation exceeded forecasts. On a year-on-year basis, inflation eased by less than anticipated. However, on a monthly basis harmonised inflation accelerated.
Together, these two data releases have helped to increase expectations of more ECB rate rises, thereby boosting the Euro (EUR).
Meanwhile, weakness in the US Dollar (USD) is aiding EUR, due to the currencies’ negative trading relationship.
Earlier upbeat economic news and a cheery tone in markets may be limited the riskier Pound’s (GBP) losses against the safer Euro. However, the currency pairing has dipped. At the time of writing, GBP/EUR is trading at €1.1331, down 0.5% from an earlier high of €1.1389 and 0.2% down on the day.
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Pound Euro (GBP/EUR) Exchange Rate Wavers as Markets Digest Data
The Pound Euro (GBP/EUR) exchange rate saw mixed movement this morning as markets digested the latest economic releases from the UK and the Eurozone.
At the time of writing GBP/EUR is trading at €1.1366, up a meagre 0.1% on the day, having retreated from an earlier high of €1.1389.
Pound (GBP) Initially Firms amid UK Business Optimism
The Pound (GBP) enjoyed a boost at the start of today’s European session amid ‘signs of green shoots’ in the UK’s economic outlook, according to a survey by the Confederation of British Industry (CBI).
Although the poll showed an ongoing contraction across the private sector, this month’s decline was the softest since July 2022.
On a more positive note, British firms in both manufacturing and services expect activity to return to growth over the next three months. This is the first time since April 2022 that UK companies have had positive expectations looking forward, according to the poll.
This contributed to an initial rise in the Pound. However, Sterling was unable to sustain the upside, as concerns remain over the UK economy.
Commenting on the survey results, Alpesh Paleja, CBI Lead Economist, said:
‘It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions, rather than delivering the strong, sustainable growth we need.
‘While the Chancellor has set out an ambitious plan to deliver growth in his Spring Budget, there’s broad recognition that the UK still faces considerable economic headwinds.’
Euro (EUR) Propped Up by USD Weakness
Meanwhile, the Euro (EUR) managed to recoup earlier losses against the Pound, thanks in part to a decline in the US Dollar (USD).
As EUR/USD is the most-traded currency pairing globally, the Euro is negatively correlated with the US Dollar: when the latter falls, as it has done today, the former often rises.
As the morning unfolds, the single currency could come under some pressure. At the time of writing, the Eurozone’s latest economic sentiment index has just been published, and it came in below expectations.
Economic optimism in the Euro area unexpectedly softened this month, decreasing from 99.7 to 99.3. Forecasters had anticipated a marginal rise to 99.8.
The reading represents a second consecutive month of declining economic sentiment – albeit at a modest pace – after a rapid recovery from October’s near two-year low.
Pound Euro Exchange Rate Forecast: German Inflation to Dent EUR?
Looking ahead, Germany’s latest consumer price index is in focus. Seen as something of a precursor to the Eurozone inflation rate, due out tomorrow, Germany’s reading could impact European Central Bank (ECB) interest rate rise bets.
Economists expect German headline inflation to ease sharply, cooling from 8.7% in February to 7.3% in March. If the CPI prints as expected, the single currency could face some selling pressure. An above-forecast reading would likely lend EUR support.
As for the Pound, the mixed outlook for the UK economy could keep a lid on GBP exchange rates. However, the prevailing upbeat market mood could bolster the riskier Pound against the safer Euro.