GBP/EUR Exchange Rate Pressured by Risk-Adverse Mood
(Updated 14:10 25/4/2022) The Pound Euro (GBP/EUR) exchange rate is trading with modest losses this afternoon, cementing the pairing’s drop below €1.13.
The dip in GBP/EUR comes as the market mood continues to sour through the start of the US trading session and dragging on the increasingly risk-sensitive Pound.
Sterling’s weakness is also linked to data from the Confederation of British Industry (CBI) reporting another contraction in UK industrial orders this month.
While it is climbing versus the Pound, the Euro is struggling to replicate this success against its other peers this afternoon. EUR demand remaining suppressed by a strengthening US Dollar.
Original article continues below:
Pound Euro Exchange Rate Rangebound in Bearish Trade
The Pound Euro (GBP/EUR) exchange rate is trading sideways so far this morning. As a cautious market mood limits movement in the pairing.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1295. Virtually unchanged from this morning’s opening rate.
Pound (GBP) Muted in Cautious Trade
The Pound (GBP) is trapped in a narrow range so far this morning amid a cautious market mood.
The increasingly risk-sensitive currency is struggling as investors appear reluctant to make any aggressive bets ahead of some high impact data from the US and Eurozone later in the week.
Market sentiment is also being suppressed by concerns over global growth. Analysts warn higher interest rates could choke off growth in the latter half of 2023.
This leaves the Pound struggling to benefit from the UK’s latest borrowing figures.
According to data published by the Office for National Statistics (ONS) the UK government borrowed less than expected in the 2022-23 financial year.
In the year to 31 March, borrowing was estimated to have totalled £139.2bn. Up £18.1bn on last year, but beating forecasts it would reach £152bn.
Public sector net borrowing (excluding public sector banks) was £21.5 billion in March 2023.
This takes the full financial year total to £139.2 billion, up £18.1 billion on the previous year and the fourth highest since records began in 1946.
➡️ https://t.co/aRFdicMNvO pic.twitter.com/8WkfBB2rkJ
— Office for National Statistics (ONS) (@ONS) April 25, 2023
Sterling is drawing some support from suggestions from analysts that the smaller-than-expected borrowing figures will provide Chancellor Jeremy Hunt with some wiggle room to increase spending or cut taxes later in the year.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics comments:
‘With the next election fast approaching we wouldn’t be at all surprised to see a further fiscal loosening in the Autumn Statement, on top of the £21.9bn (0.8% of GDP) giveaway in 2023/24 announced in the spring.’
Euro (EUR) Suppressed by USD Strength
The Euro (EUR) is also subdued this morning as it is undermined by its negative correlation with the US Dollar (USD).
USD exchange rates are rising this morning. A risk-off market mood as well as rising Federal Reserve interest rate hike expectations are bolstering demand for the safe-haven currency.
This is offsetting the Euro’s upside potential this morning, despite a strengthening of European Central Bank (ECB) rate hike bets.
ECB policymakers have struck an increasingly hawkish tone in recent weeks, leading EUR investors to price in another 50bps rate hike from the bank next month and propping up demand for the Euro.
Pound Euro Exchange Rate Forecast: ECB and BoE Rate Speculation to Drive GBP/EUR in Mid-Week Trade?
Looking ahead to Wednesday, a series of speeches by ECB policymakers may act as the primary catalyst of movement in the Pound Euro (GBP/EUR) exchange rate.
If policymakers strike a broadly hawkish tone and reinforce expectations for another 50bps rate hike next week, the Euro is likely to strengthen.
Meanwhile, speculation regarding the Bank of England’s (BoE) future monetary policy could drive movement in the Pound.
In the wake of last week’s stronger-than-expected inflation figures, some GBP investors are predicting the BoE may continue to raise interest rates past May. Will this help to underpin Sterling sentiment?