Pound Euro (GBP/EUR) Exchange Rate Muted as Markets Await ECB Chief Speech
(Updated 09:10, 18/05/23) The Pound Euro (GBP/EUR) exchange rate has eased off a six-day high hit yesterday ahead of a speech from European Central Bank (ECB) President Christine Lagarde.
Yesterday, the Pound (GBP) rallied against the Euro (EUR) as softer Eurozone inflation and hawkish comments from Bank of England (BoE) Governor Andrew Bailey saw markets revise their expectations for more interest rate rises. Sterling has softened since then, though it remains strong against the single currency.
The upcoming speech from Christine Lagarde could change things, though. The ECB chief struck a decidedly hawkish tone following the bank’s last rate decision, declaring:
‘We are not pausing. That’s very clear… We know we have more ground to cover’.
If Lagarde strikes a similar tone during this morning’s speech, we could see the Pound Euro exchange rate stumble.
Meanwhile, across the Channel, a lack of UK economic data could leave Sterling vulnerable today.
At the time of writing, GBP/EUR is trading at around €1.1513, marginally down from yesterday’s six-day high of €1.1532.
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Pound Euro (GBP/EUR) Exchange Rate Strengthens as Markets Alter Rate Hike Expectations
(Updated 16:50, 17/05/23) The Pound Euro (GBP/EUR) exchange rate managed to stage a strong recovery today. After an initial dip, the pairing bounced back to hit a six-day high of €1.1526.
Pound Sterling (GBP) fell against the Euro (EUR) as European trade got underway this morning. A downbeat mood saw traders favour the safer single currency versus the riskier Pound.
However, a rallying US Dollar (USD) put pressure on the Euro, due to EUR’s negative correlation with USD. Furthermore, softer Eurozone inflation data dented European Central Bank (ECB) interest rate rise bets.
Later in the session, comments from Bank of England (BoE) Governor Andrew Bailey seem to have boosted the Pound. Bailey acknowledged that the UK was experiencing a wage-price spiral, as rising wages lead to more persistent inflationary pressures.
‘[High inflation] reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy. And as headline inflation falls, these second-round effects are unlikely to go away as quickly as they appeared.’
The remarks suggest that the bank could continue to raise interest rates as it expects underlying inflation to remain elevated, even as the headline consumer price index falls sharply. This, in turn, lifted the Pound Euro exchange rate.
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Pound Euro (GBP/EUR) Exchange Rate Recovers as Single Currency Faces Selling Pressure
(Updated 12:50, 17/05/23) The Pound Euro (GBP/EUR) exchange rate recovered from an initial dip earlier this morning and is now trading with modest gains on the day.
After softening at the start of today’s trade, the Pound (GBP) managed to recoup its losses. Sterling seemed to have entered oversold conditions, thereby attracting some dip-buying.
Meanwhile, the Euro (EUR) relinquished its earlier gains and began to decline. EUR’s negative correlation with the US Dollar (USD) may have impacted the common currency, as the latter climbed.
A slight downward revision to the Eurozone’s final consumer price index may also have dented EUR. Although the annual inflation rate remained unchanged, monthly inflation eased more than initially expected. This may have dampened European Central Bank (ECB) interest rate rise bets.
Comments from Bank of England (BoE) Governor Andrew Bailey may be supporting Sterling. Bailey said that the UK labour market remains tight, which in turn may result in the bank raising rates even higher. The BoE chief commented:
‘[T]he easing of labour market tightness is happening at a slower pace than we expected in February, and the labour market remains very tight. The number of vacancies remains significantly higher, relative to the number of unemployed, than before the pandemic, and employment figures have been strong.’
At the time of writing, GBP/EUR is trading at €1.1501. While this is only marginally higher on the day, it is a nearly 0.3% rise from an earlier low of €1.1469.
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Pound Euro (GBP/EUR) Exchange Rate Edges Lower in Wake of UK Jobs Data
The Pound Euro (GBP/EUR) exchange rate weakened this morning as markets continue to pare back Bank of England (BoE) rate rise bets following yesterday’s UK jobs report.
At the time of writing, GBP/EUR is trading at around €1.1478, marginally down on the day but up from an earlier low of €1.1469.
Pound (GBP) Slips as BoE Bets Fade
The Pound (GBP) faced selling pressure this morning as yesterday’s downbeat jobs data continues to pressure the UK currency.
The latest labour market report showed that British unemployment unexpectedly rose to a 14-month high. Meanwhile, wage growth missed forecasts and job vacancies declined.
There was also a 136,000 drop in PAYE employees from March to April. This was the first decline since February 2021.
Combined, these data points suggest that the UK labour market is cooling as the Bank of England’s aggressive rate hiking cycle begins to bite.
As a result, markets reined in their expectations for more BoE interest rate rises, and they continue to do so today. This is heaping pressure on the Pound.
Euro (EUR) Firms amid Risk-Off Mood
Meanwhile, the Euro (EUR) ticked higher against Sterling at the start of today’s session. A gloomy market mood has traders favouring the safer single currency over the riskier Pound.
Global investors are becoming increasingly concerned about a slowdown in growth, as recent data from the US, China and the Eurozone suggest that large economies are softening amid a climate of higher borrowing costs worldwide.
A modest revision to the Eurozone’s final inflation rate then trimmed EUR’s upside. Although the annual inflation rate remained the same, monthly inflation cooled more than initially estimated last month. In April, headline inflation was 0.6%, down from 0.9% the previous month and below the preliminary reading of 0.7%.
This could potentially see GBP/EUR recoup some losses.
Pound Euro Exchange Rate Forecast: Dovish BoE Comments to Dent GBP/EUR?
Looking ahead, BoE Governor Andrew Bailey is due to deliver a speech later this morning. The central bank chief dented the Pound last week by saying he expects inflation to fall ‘rapidly’ from April. If Bailey reiterates this view then the Pound could face further losses.
However, if Bailey raises concerns that wage growth remains elevated, then GBP/EUR could firm.
Towards the end of the session, European Central Bank (ECB) Vice-President Luis de Guindos will also deliver a speech. Similar to Bailey, any dovish or hawkish comments could dent or support the Euro, respectively.
Through the afternoon, risk appetite could drive most movement in the Pound Euro pair. If the market mood remains downbeat then Sterling could struggle against the safer single currency.