Pound Euro (GBP/EUR) Exchange Rate Muted Despite Record High EU Interest Rates
Article updated 15:50, 27/7/23:
The Pound Euro (GBP/EUR) exchange rate is remaining flat this afternoon, despite the European Central Bank (ECB) pressing ahead with a 25bps hike.
Following ECB President Christine Lagarde’s speech, the Euro is encountering notable selling pressure. In her speech, Lagarde hinted that a pause in the ECB’s tightening cycle may be imminent.
Furthermore, she opted not to pre-announce anything, as was the case with today’s hike. With this in mind, the ECB have left both another hike and a pause on the table for the next meeting.
As such, EUR investors have shied away from providing much support for the Euro.
However, the Pound has been unable to press its advantage due to a dismal distributive trades print from the Confederation of British Industry (CBI). The index fell sharply below forecasts, printing at -25, as opposed to -2.
Martin Sartorius, Economist at CBI, commented that:
‘Firms remain cautious about the retail sector’s near-term outlook as they pare back on orders and brace themselves for another sales contraction in the year to August.’
At the time of writing, GBP/EUR is trading at around €1.1678, showing little movement from the morning’s opening rates.
Original article continues below:
Pound Euro Exchange Rate Flat amid Decreasing German Consumer Pessimism
The Pound Euro exchange rate is trapped in narrow boundaries this morning, following the latest German consumer confidence data.
At the time of writing, GBP/EUR is trading at around €1.1670, displaying little movement from the morning’s opening rates.
Euro (EUR) Choppy amid Decreasing German Consumer Pessimism
The Euro (EUR) is seeing choppy trade this morning, following the publication of the latest GfK consumer confidence data.
The index printed at -24.4, above the -24.7 result expected, which indicates a minor rebound in confidence. As Germany acts as the Eurozone’s largest economy, this uptick could be bringing cheer to EUR investors.
Rolf Bürkl, Consumer Expert for GfK, commented:
‘Currently, only income expectations are contributing to the improvement in consumer sentiment. The main reason for the decrease in pessimism is the hope of declining inflation rates. This has somewhat improved the chances of consumer sentiment resuming its recovery course.’
Similarly, broad weakness in the US Dollar (USD) could be yielding some gains for the common currency. The pairing shares a negative correlation, which could be pushing some support to EUR after the Federal Reserve’s rate decision.
However, the main event is still to come, wherein the European Central Bank (ECB) is set to take the stage.
Pound (GBP) Listless as Data Remains in Short Supply
The Pound (GBP) is struggling for clear direction this morning, as data releases remain in short supply.
As such, Sterling is being left to trade on directions supplied by other currencies, and the whims of the market.
Following the Federal Reserve’s lack of clarity on the future of additional interest rate hikes, the mood appears muted.
Fed Chair Jerome Powell stated that:
‘It is certainly possible that we would raise the (federal) funds rate again at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting.’
Elsewhere, the expectation that the Bank of England (BoE) may have to keep hiking for longer than its counterparts may be bringing trepidation. With the UK economy continuing to show signs of ailing health, the prospect of further tightening is worrying to some investors.
GBP/EUR Exchange Rate Forecast: Dovish ECB Hike to Weigh on Euro?
This afternoon, the Euro is likely to see fresh volatility after the European Central Bank’s interest rate decision.
While a 25bps hike is priced in and a bit of a foregone conclusion, the forward guidance remains in question. There is a growing perception amongst analysts that the ECB will press ahead with a more restrained, dovish forward guidance. If this comes to pass, the common currency could drop sharply against its peers.
Further afield, Friday sees the release of impactful German data, wherein the inflation and GDP growth rates are scheduled.
Meanwhile, the Pound is unlikely to see much in the way of directional trade, due to a lack of data releases. However, as this would leave the increasingly risk-sensitive Sterling vulnerable to shifts in market mood, bearish trade may dent GBP.