Pound Euro (GBP/EUR) Exchange Rate Meanders as Sterling Consolidates Gains
The Pound Euro (GBP/EUR) exchange rate is trading listlessly so far this morning, as Sterling looks to consolidate recent gains.
Tepid risk appetite through the markets may also be playing a role in keeping the pairing within narrow bounds.
At the time of writing, GBP/EUR is trading at around €1.1689, showing minimal movement from the morning’s opening rates.
Pound (GBP) Consolidates Gains amid Lack of Data
The Pound (GBP) is trading in a consolidatory fashion this morning, clinging to its recent gains against most peers.
A lack of fresh data impetus appears to prevent clear traction, however. With no economic data for investors to engage with, there appears to be little reason for Sterling to continue rallying.
However, continued bets on further tightening from the Bank of England (BoE) are likely keeping GBP afloat this morning. Ahead of next week’s inflation data, investors have bet that the BoE will pursue rate increases up to 6.5%.
On the other hand, a more cautious market mood this morning could be capping this upside further. Due to the Pound’s increasingly risk sensitive nature, Sterling is more susceptible to shifts in risk appetite.
Euro (EUR) Firms as USD Sell-Off Continues
The Euro (EUR) is firming this morning, following yesterday’s US Dollar (USD) sell off. Following continued evidence to suggest that inflation is cooling in America, USD has slumped, bringing tailwinds to EUR.
Furthermore, a sharp decline in the Eurozone’s trade deficit brought support to the common currency. With the bloc recently falling into deficit, the move towards a recovery likely cheered EUR investors.
Similarly, continued bets on further interest rate hikes from the European Central Bank (ECB). Economists at Commerzbank commented:
‘The market is still pricing in a few more rate hikes for the ECB and what is probably more decisive: ECB rate cuts are being priced in only very cautiously, but quite convincingly for the US. No doubt we could argue whether the market’s view on the Fed is exaggerated, but the most recent inflation data illustrated that the ECB will have to do more or will have to maintain a restrictive monetary policy for longer.’
Elsewhere, the air of caution amongst investors this morning is likely bringing support to the safer Euro.
GBP/EUR Exchange Rate Forecast: Bullish Trade to Lift GBP?
Looking ahead for the Pound, the data calendar at the start of next week is very light. Because of this, Sterling may continue to trade on market dynamics.
With bullish trade looking likely to carry through to the end of the week, this momentum could carry Sterling at the beginning of the week.
For the Euro, if the momentum continues it may weaken EUR rates, especially against the Pound. As a safer currency, cheery trade stands to dent the Euro against the increasingly risk-sensitive Sterling.
However, the Euro could see some cushioning if the US Dollar continues to struggle, owing to that pairings negative correlation.