Pound Euro (GBP/EUR) Exchange Rate Weakens as BoE Rate Hike Bets Ease
(Article updated 15:02, 13/4/23) The Pound Euro (GBP/EUR) exchange rate is slipping this afternoon, as GBP investors pare back their expectations of further rate hikes.
Bank of England (BoE) Chief Economist Huw Pill delivered a speech which outlined the BoE’s current approach to monetary policy. He further delved into the UK’s economic outlook, and delivered a downbeat expectation.
Pill stated:
‘Activity in the UK remains subdued, as the level of GDP was flat over the month in February.
Bank staff continue to expect GDP to decline by 0.1% in 2023 Q1, as had been projected in the February MPR [monetary policy report].’
On top of this, Pill highlighted that wage growth in the UK was continuing to fall, further iterating that this was likely inline with cooling inflation.
As such, GBP investors likely began to recalibrate the likelihood of further substantial rate hikes, weakening Sterling.
Furthermore, the Euro (EUR) remained underpinned during the afternoon session. In the morning, the latest set of Eurozone industrial production data was released and printed far above forecasts at 1.5%.
At the time of writing, GBP/EUR traded at around €1.1323, a fall of around 0.3% from today’s opening rates.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Narrows as UK Economy Stagnates
The Pound Euro exchange rate is trading flatly this morning, as the UK’s economy was shown to have stagnated in February.
At the time of writing, GBP/EUR traded at around €1.1360, showing minimal movement from the morning’s opening rates.
Pound (GBP) Undercut by Economic Stagnation
The Pounds (GBP) appeal is being undercut this morning by the latest GDP release. February’s figure pointed to stagnation in the UK’s economy, printing below forecasts of 0.1% growth at 0%.
While the UK’s construction sector saw growth over the month, this was offset by contractions in the service and production sectors.
Tom Stevenson, Investment Director for Personal Investing at Fidelity International, commented:
‘Although January’s growth was revised up slightly to 0.4%, February’s flat line reflects the impact of the UK’s winter of discontent. Strike action took the shine off a modest increase in retail sales, while falling production in the month offset better construction activity.’
As such, the UK’s growth outlook appears negative. Analysts are considering the prospect that the UK is the ‘weak link’ amongst developed economies, further dampening GBP.
However, an upward revision for January’s GDP data is likely cushioning GBP. Now showing 0.4% growth, it decreases the chances of a Q1 recession in the UK’s economy.
Euro (EUR) Cushioned by Reaffirmed Rate Hike Bets
The Euro (EUR) is being underpinned by reinforced rate hike bets this morning. The pressure has eased on the European Central Bank (ECB) to slow their pace of tightening.
This attitude follows a report from the International Monetary Fund (IMF) and a speech from Bank of England (BoE) Governor Andrew Bailey. Both asserted that recent banking turmoil shouldn’t impact monetary policy.
This view may be further underlined by hawkish comments from ECB policymaker Robert Holzmann. Yesterday, he stated:
‘There is a great deal of common understanding in the ECB Governing Council that we have not yet reached the end of the line when it comes to key interest rates.’
Because of this, EUR investors appear more hopeful for further tightening from the ECB who remain more hawkish than other central banks.
GBP/EUR Exchange Rate Forecast: Pill Speech to Buoy Sterling?
Looking ahead for the Pound, this afternoon sees a speech from Bank of England (BoE) Chief Economist Huw Pill. While yesterday’s speech from Governor Bailey gave little away in terms of forward guidance, Pill’s speech could offer some hints.
If he does, GBP could gain support in the afternoon. However, if he chooses to remain coy on further guidance, it may do little for Sterling.
Tomorrow, both sides of the pairing see a thin data calendar. Because of this, external factors may play a role in shaping the pairing. If the market mood begins to sour, EUR could rise over GBP due to its safer nature.
Specifically for the Euro, if the German wholesale data falls as expected, it may weigh on the single currency. As an indicator of CPI in the bloc’s largest economy, the fall could dent rate hike bets from EUR investors.