Pound Euro Exchange Rate Slips on Concerns over UK Outlook
The Pound Euro (GBP/EUR) exchange rate is weakening modestly as fears over the UK economy were limited by receding global inflationary pressures.
At time of writing the GBP/EUR exchange rate is trading around €1.1309, a 0.23% fall from this morning’s opening levels.
Pound (GBP) Undermined by Uncertain Economic Outlook
The Pound is trading with mixed success this morning after GDP growth flatlined in the month of February. Despite concerns over the economic prospects from the International Monetary Fund (IMF), Chancellor Jeremy Hunt is more upbeat.
Speaking at the IMF’s Spring meeting in Washington DC, Hunt commented on the UK’s economic outlook:
‘The IMF have undershot on the UK economy for quite a long time. It has undershot in every year bar one since 2016. It is one of many forecasters.’
With industrial action being the major factor in a downturn in economic activity, Chancellor Jeremy Hunt accepts the short-term hit to the economy. Unwilling to give in to the demands of workers, Hunt said the UK government did not want to risk a long-term hit from stubbornly high inflation.
GBP investors are also upbeat over the prospect of the US finally curtailing their aggressive tightening cycle. With inflationary pressures appearing to ease across the pond, global market sentiment is improving, modestly supporting the Pound.
Euro (EUR) Supported by Elevated Rate Hikes
Meanwhile, the Euro is mainly trading on market sentiment and its negative correlation with the US Dollar. Continued rate hike bets could also be supporting the single currency.
The latter continues to weaken amid a flurry of downbeat US economic data and pared rate hike expectations from the Federal Reserve. Furthermore, predictions of the Fed cutting interest rates towards the end of the year is sapping demand for the safe-haven US Dollar.
Elsewhere, the policy divergence between the European Central Bank (ECB) and the Fed is also supporting the Euro. ECB Governing Council member Joachim Nagel spoke at the IMF event in Washington and revealed that the central bank has further to go in tightening monetary policy. Nagel added that he couldn’t ‘commit to any order of magnitude of what might happen’ at the May meeting, but said:
‘(But) what is clear is that monetary policy must continue to act decisively to restore price stability in a timely manner.’
Pound Euro Forecast: BoE Speech to Dent the Pound?
Looking ahead, the Pound Euro exchange rate could see further movement with a speech from Bank of England (BoE) policymaker Silvana Tenreyro. Renowned for being one of the most dovish members of the Monetary Policy Committee (MPC), hints of a rate pause could weigh on Sterling.
Meanwhile, the Euro will mainly be trading on its negative correlation with the US Dollar. With a flurry of key data releases, if the ‘Greenback’ softens on downbeat figures, the Euro could climb.