Pound Euro (GBP/EUR) Exchange Rate Rangebound as Markets Bets on Central Bank Slowdown

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways as Risk Appetite Returns

(Updated 16:34 18/05/23)

The Pound Euro (GBP/EUR) exchange rate is continuing to trade in a narrow range today. A return of risk appetite may be underpinning the pairing this afternoon.

The celebration of Ascension Day across most of Europe may be prompting thin trading conditions in the Euro, which may also be preventing any significant downturn in the pair.

At time of writing the GBP/EUR exchange rate is at around €1.1523, which is virtually unchanged from this morning’s opening figures.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly amid Risk-Off Mood

The Pound Euro exchange rate is trending sideways today amid bets on a slower pace of policy tightening from the Bank of England (BoE) and European Central Bank (ECB).

A cautious market mood may also be preventing GBP/EUR from making any meaningful gains today.

At time of writing the GBP/EUR exchange rate is at around €1.1501, which is virtually unchanged from this morning’s opening figure.

Pound (GBP) Slips amid Reduced BoE Bets

The Pound (GBP) is dipping today. Expectations of a slowdown in policy tightening from the Bank of England may be weighing on Sterling.

Bets on further BoE rate hikes are cautious following a speech from BoE Governor Andrew Bailey on Wednesday.

Speaking at the British Chambers of Commerce’s annual conference, Bailey said:

‘There are signs that the labour market is loosening a little. There has been some recovery in labour market participation, especially amongst younger workers, and the number of vacancies has come down from very high levels.’

This confirmation of an easing in underling inflationary pressures may be continuing to dent confidence in GBP today.

On the other hand, Bailey went on to say that the UK’s labour market remains ‘very tight’ and that the cooling was not occurring as quickly as forecast.

Euro (EUR) Declines as ECB Vice President Signals Slower Rate Hike Pace

The Euro (EUR) is edging lower today ahead of a speech by European Central Bank President Christine Lagarde.

EUR may be seeing more drastic losses prevented by a persistent risk-off mood, though. The mood in the markets is still cautious amid fears of a collapse in the US debt ceiling.

Mixed comments from ECB Vice-President Luis de Guindos may be keeping pressure on the Euro today.

Speaking on Thursday morning, de Guindos said:

‘A significant part of the journey has been made, there is still some way to go, probably the road ahead is shorter, but I don’t know what the end point is going to be.’

Signals that the ECB may slow its pace of policy tightening could be dampening enthusiasm for EUR. On the other hand, the hints from de Guindos of additional rate hikes may be limiting the single currency’s downturn.

GBP/EUR Exchange Rate Forecast: Will Bailey’s Testimony Push GBP Lower?

Looking ahead to the remainder of the week, there are no other significant data releases for the Pound. Movement in Sterling is therefore likely to be dictated by bets on the BoE’s forward path. Following Bailey’s relatively dovish speech on Wednesday, GBP may be pulled lower by fewer rate hike bets.

Testimony from Bailey and other policymakers today could provide further signals regarding the central bank’s future policy tightening. Additionally, BoE Chief Economist Huw Pill is set to speak today.

Additionally, any further signals from Chancellor Jeremy Hunt of the UK’s tax policies could inspire movement in the Pound.

For the Euro, a speech from ECB President Christine Lagarde later this morning could bolster the single currency. Markets will be looking to Lagarde for any signs that the central bank will continue its aggressive policy tightening agenda. Lagarde is also due to speak on Friday.

ECB rate-setter Isabel Schnabel is also set to speak on Friday. Schnabel has been a notably hawkish policymaker in the past, and a speech from her echoing this sentiment could boost the Euro.

Gareth Monk

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