Pound Euro (GBP/EUR) Softens amid Hawkish ECB
(Updated 20/6/23, 16:30)
The Pound Euro (GBP/EUR) exchange rate is under further pressure this afternoon. Expectations of the European Central Bank (ECB) to continue raising interest rates could be buoying the Euro. Lee Sue Ann, economist at UOB Group, expects the inflation outlook to be skewed to the upside, potentially boosting the Euro.
‘(As) the ECB looks set to hike again in July, Lagarde refrained from providing any hints on what will be done in September. Fresh quarterly forecasts in Sep will once again offer the ECB an opportunity to reassess its views on inflation and growth. For now, we continue to expect a final 25bps hike in Jul. The risks are, nonetheless, skewed to the upside for additional rate hike(s) beyond July.’
Meanwhile, recession fears have once again surfaced for the UK, with Bloomberg Economics expecting a shallow recession if interest rates hit the 6% mark.
At time of writing, the GBP/EUR exchange rate is around €1.1682, a 0.24% slip from this morning’s opening levels.
Original article continues below…
GBP/EUR Weakens as GBP Investors Shift to the Sidelines
The Pound Euro exchange rate is slipping as the market braces for the latest inflation data for the UK.
At time of writing, the GBP/EUR exchange rate is around €1.1679, a 0.27% slip from this morning’s opening levels.
Pound (GBP) Quiet ahead of Inflation Data
The Pound (GBP) is under pressure this morning as investors slink to the sidelines ahead of a busy few days of data. With the latest headline CPI due to print in the early hours of tomorrow, Sterling could be preventing further losses on elevated rate hike bets.
Despite inflation expected to soften further, the latest reading could still highlight the ‘stickiness’ of UK inflation. Compared to other major economies, the UK is still under pressure from elevated inflation. Meanwhile, core inflation, excluding volatile prices, continues to accelerate at an unfavourable pace, bolstering rate hike bets.
Compounding these issues is a persistently hot labour market, with surprising wage growth forcing the BoE to continue its aggressive hiking cycle. Sterling could remain supported on expectations of tightening throughout the summer.
Euro (EUR) Supported by Hawkish ECB
The Euro (EUR) is also fairly listless this morning amid a lack of economic data. However, the single currency remains fairly supported on growing expectations of further tightening from the European Central Bank (ECB).
After last week’s decision to raise the interests rate by 25bps, ECB President Christine Lagarde gave strong hints at further tightening. With expectations mounting of at least one more rate hike at the next meeting, the debate is starting to shift to whether a pause will be coming in September.
This could be starting to weigh on the Euro as the more dovish ECB policymakers are trying to temper expectations going forward. Economists at Commerzbank commented on how the Euro could run into trouble on dovish rhetoric:
‘It is hardly surprising that the hawks are advocating a rate hike in September reasonably clearly, whereas the doves are trying to dampen expectations.
‘The doves might increasingly make cautious comments at least if the economic data points more or less towards easing price pressure so that the Euro’s upside potential might be limited for now.’
Pound Euro Exchange Rate Forecast: Further-than-Expected Cooling Inflation to Weigh on Sterling?
Looking ahead, the Pound Euro exchange rate could see further movement with the release of the latest inflation data for the UK. With expectations of headline CPI to cool to 8.5%, the latest figure is unlikely to deter the BoE from hiking, but a further-than-expected easing could temper expectations for further tightening beyond Thursday’s meeting.
Meanwhile, the Euro could see further movement on more speeches from the ECB. A continued hawkish rhetoric could inspire EUR investors.