GBP/EUR Exchange Rate Buoyed by Downbeat Eurozone Data
(Updated 14:35 6/6/2022) The Pound Euro (GBP/EUR) exchange rate has consolidated about €1.16 this afternoon as some lacklustre EUR data drags on the single currency.
The latest German factory orders and Eurozone retail sales releases both printed below expectations this morning. Coupled with softening Eurozone consumer inflation expectations this is weakening European Central Bank (ECB) rate hike bets.
The Euro’s negative correlation with the US Dollar (USD) is also acting as a headwind, as a cautious mood buoys USD demand.
However, the uptick in GBP/EUR remains very limited in scope, with the Pound still struggling to find momentum following its recent selloff.
Original article continues below:
Pound Euro Exchange Rate Holds at €1.16
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range so far this morning. The pairing is holding its ground amid a drop in Eurozone consumer inflation expectations.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1601. Virtually unchanged from this morning’s opening rate.
Euro (EUR) Undermined by Softening Inflation Expectations
The Euro (EUR) is on the defensive this morning amid falling consumer inflation expectations in the Eurozone.
The European Central Bank’s (ECB) latest consumer expectation survey reported that households expect prices to continue to fall in the coming months. Median expectations for inflation over the next 12 months fell from 5.0% to 4.1% in April.
Eurozone inflation has already shown signs of cooling faster than previously expected. With May’s preliminary consumer price index reporting headline inflation plunged from 7% to 6.1%.
Today’s survey further reinforces the expectations this deceleration will not be temporary and is undermining ECB interest rate expectations.
Further limiting the appeal of the Euro is the publication of Germany’s latest factory orders release.
April’s figures reported order growth contracted 0.4%. While this a significant improvement from the 10.9% decline recorded in March it missed forecasts for a 3% expansion.
Commenting on the data, analysts at Pantheon Macroeconomics, said:
‘We had expected a sizeable rebound in the April report following the crash in March; we were very wrong.
‘Overall, the poor performance at the start of Q2 leaves German factory orders down just under 10% compared to the level in the first two months of the year, and on track for a significant fall in Q2 as a whole.’
Pound (GBP) Subdued amid Ongoing Correction
While it is holding its ground against the Euro, the Pound (GBP) is otherwise struggling to keep its head above water.
This comes amid an ongoing correction in the currency, following a sharp appreciation in GBP exchange rates last week.
The Pound was propelled to multi-month highs last week in response to an aggressive repricing of Bank of England (BoE) rate expectations. GBP investors now see UK interest rates rising as high as 5.5% by the end of 2023.
However, upon entering overbought conditions towards the end of the week, Sterling has since struggled to find purchase.
This also wasn’t helped by a moderation of UK consumer spending according to the British Retail Consortium’s (BRC) latest sales monitor index.
Pound Euro Exchange Rate Forecast: Underwhelming German Industrial Production to Drag on EUR?
The Pound Euro (GBP/EUR) exchange rate may strengthen tomorrow morning, following the publication of Germany’s latest industrial production figures.
With factory orders printing well below forecast, there is a good chance we may see industrial production also undershoot expectations in April. Expect to see the Euro slide if we see further weakness in Germany’s key industrial sector.
EUR investors may also look to a speech by ECB Vice President Luis de Guindos for fresh impetus tomorrow. If he strikes a hawkish tone the Euro could strengthen.
Meanwhile, in the continued absence of any notable UK economic data, any movement in the Pound is likely to remain linked to BoE rate hike bets.