Pound Euro (GBP/EUR) Exchange Rate Climbs to One-Week High in Upbeat Trade

GBP/EUR Exchange Rate Buoyed by Positive Market Mood

(Updated 15:25 4/7/2022) The Pound Euro (GBP/EUR) exchange rate is trading at a one-week high this afternoon as the increasingly risk-sensitive Pound finds support amid an improving market mood.

At the time of writing the GBP/EUR exchange rate is up 0.4% on the day, leaving it just shy of €1.17.

While Sterling sentiment is benefiting from the positive market mood, its upside potential remains capped by ongoing UK economic jitters.

This comes as forecasts for a 50bps rate hike from the BoE next month has seen the average five-year mortgage in the UK rise above 6%.

Elliott Culley, a director at the mortgage broker Switch Mortgage Finance, says:

Unfortunately, under current forecasts, rates still haven’t reached their peak. Five-year fixed rates have and continue to be cheaper than two-year fixes and some clients have decided to fix for longer due to the uncertain outlook.

Elsewhere, the Euro remains muted in the wake of this morning’s disappointing trade figures from Germany.

Original article continues below:

Pound Euro Exchange Rate Buoyed amid German Export Weakness

The Pound Euro (GBP/EUR) exchange rate is drifting higher this morning. The uptick in the pairing follows the release of some underwhelming German trade figures.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1650. Up roughly 0.2% from this morning’s opening rate.

Euro (EUR) Muted as German Exports Slide

The Euro (EUR) is subdued this morning as EUR sentiment is sapped by the publication of Germany’s latest trade figures.

According to data published by Destatis, Germany’s trade surplus narrowed from a downwardly revised €16.5bn to €14.4bn in May.

This came on the back of a surprising contraction in export growth. Today’s figures showed exports declined 0.1% in May. Down from a 1% jump in April and missing forecasts for a 0.3% expansion.

May’s decline is weighing on the Euro amid concerns the recent weakness in exports is becoming a liability for the German economy.

Carsten Brzeski, Global Head of Macro for ING Research, comments:

‘Since last summer, German exports have been extremely volatile. However, the general trend is pointing downwards, not upwards. Trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag.’

The underwhelming trade figures are stoking concerns over the resilience of the German economy. Particularly amid signs this weakness in exports looks set to persist.

Brzeski adds:

‘Today’s numbers are rather another illustration that sluggish exports are not an exception but rather the new normal.’

Another decline in June may raise concerns that Germany’s recession will have continued into the second quarter.

Pound (GBP) Muted as BoE Rate Hike Bets Stoke UK Economic Jitters

The Pound (GBP) is struggling to attract support this morning amid ongoing concerns about how higher interest rates will impact the UK economy.

This comes as some GBP investors begin to price in another 50bps rate hike by the Bank of England (BoE) in August.

Analysts suggest the BoE could raise rates as high as 6% by the end of 2023, as stubbornly high UK inflation forces the bank’s hand.

The Pound has faced significant headwinds over the past couple of weeks, amid fears this may result in the BoE tightening the UK into a recession.

Pound Euro Exchange Rate Forecast: Weak Eurozone PMI to Drag on EUR?

The Pound Euro (GBP/EUR) exchange rate may continue to trade positively on Wednesday, with the publication of the Eurozone’s latest PMIs.

June’s finalised figures are expected to confirm growth in the bloc’s service sector slowed to a five-month low. If this is revised lower, similarly to Monday’s manufacturing PMI, this could weigh on the Euro.

Meanwhile, the UK’s services PMI is also expected to confirm a moderation of activity, although to a more modest extent than in the Eurozone. Could this allow the Pound to maintain a positive trajectory against the Euro?

Matthew Andrews

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