GBP/EUR Exchange Rate Holds Recaptures Pre-CPI Levels
(Updated 14:00 25/7/2022) The Pound Euro (GBP/EUR) exchange rate continues to catch bids this afternoon, with the pairing consolidating above €1.16.
GBP/EUR remains supported as Germany’s latest IFO index continues to stoke concerns over the country’s economic outlook.
The figures have stoked fears the Eurozone’s largest economy may have remained in recession in the second quarter.
In contrast, the Pound is supported by an improvement in UK business morale. The Confederation of British Industry (CBI) reported it gauge of optimism turned positive for the first time in two years, with it index climbing from -2 to 6 in Q3.
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Pound Euro Exchange Rate Firms on Disappointing German Business Indicator
The Pound Euro (GBP/EUR) exchange rate is trading positively this morning. As an increasingly gloomy German economic outlook undermines EUR sentiment.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1624. Up roughly 0.4% from this morning’s opening rate.
Euro (EUR) Pressured by Slump in Key German Index
The Euro (EUR) opens today’s session on the back foot, following the publication of Germany’s latest IFO business climate index.
Germany’s most prominent leading indicator fell from 88.5 to 87.5 in July. This is index’s third consecutive decline and sees German business morale strike its worst levels since November.
The Euro slumped amid the broad-based deterioration in morale. The outlook for the services, trade and construction sectors all declined. With companies growing increasingly pessimistic regarding the current situation.
Economists suggest firms are going more realistic regarding Germany’s current economic headwinds, after sentiment was buoyed at the start of the year after some of the more pessimistic forecasts for the economy didn’t come to pass.
Carsten Brzeski, Global Head of Macro at ING comments:
‘The optimism at the start of the year seems to have given way to more of a sense of reality. A drop in purchasing power, thinned-out industrial order books, as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy, all argue in favour of weak economic activity.’
Brzeski also warns today’s index may be an indication Germany remained in a recession in the second quarter. This could lead to a sharp drop in the Euro next week if Germany’s latest GDP release confirms this.
Pound (GBP) Buoyed by Improving Market Sentiment
The Pound (GBP) enjoys modest support this morning as the increasingly risk-sensitive currency benefits from an improving market mood.
Chinese stimulus hopes are helping to bolster risk appetite this morning. Beijing has pledged to step up its support for its economy as China’s post-Covid recovery continues to disappoint.
Investors are hopeful that more support for China’s economy will also help to shore up global growth.
Pound Euro Exchange Rate Forecast: Dovish ECB Rate Decision to Pull EUR Lower?
The Pound Euro (GBP/EUR) exchange rate may extend its gains in the second half of the week as the European Central Bank (ECB) is set to announce its latest interest rate decision on Thursday.
The ECB is widely expected to deliver another 25bps hike this month. However, there is a level of uncertainty regarding future rates amid the rapid fall in Eurozone inflation in recent months.
The Euro could face heavy selling pressure if the ECB is coy regarding the possibility of further hikes.
We don't think the ECB will pre-commit to a September hike on Thursday, which may be read as a modestly dovish surprise that could weigh on EUR/USDhttps://t.co/ILBkWDuq9t pic.twitter.com/Ypfw0DcSfc
— ING Economics (@ING_Economics) July 24, 2023
Meanwhile, in the absence of any UK data of note, the Pound could struggle to find any strong directional bias in the coming days.