Pound Euro (GBP/EUR) Exchange Rate Heads South as EUR Recovers
(Updated 16:20, 28/07/23) The Pound Euro (GBP/EUR) exchange rate slashed its earlier gains today, despite recent German data acting against the Euro (EUR). The single currency was able to recover thanks to its strong negative correlation with a weaker US Dollar (USD).
The Euro initially fell today after Germany’s quarterly GDP rate printed below expectations, stalling rather than expanding 0.1%.
However, later in the session the single currency was able to shrug off more potentially damaging German data. Inflation in the Eurozone’s largest economy cooled, which could have dampened European Central Bank (ECB) interest rate hike bets.
Instead, a downside in the US Dollar boosted the Euro, due to the currencies’ strong negative trading connection.
A larger-than-expected cooldown in the US core PCE price index – the Federal Reserve’s preferred measure of inflation – led markets to pare back Fed rate hike bets.
Meanwhile, a scarcity of UK data left the Pound (GBP) lacking support.
At the time of writing, the Pound Euro pair is trading at around €1.1658. This is roughly the same as its opening level, having retreated from an earlier high of €1.1695.
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Pound Euro (GBP/EUR) Exchange Rate Firms following Poor German Data
The Pound Euro (GBP/EUR) exchange rate is strengthening this morning after the German economy stalled in the second quarter of this year.
At the time of writing, the GBP/EUR exchange rate is trading at around €1.1686, up 0.25% on the day.
Euro (EUR) Slips as German GDP Stalls
The Euro (EUR) stumbled against the Pound (GBP) this morning, following weaker German GDP data in the wake of the European Central Bank (ECB) interest rate decision yesterday.
Although the ECB raised rates by 25bps, the bank also said that this month’s hike may have been its last. The decision caused notable volatility in EUR exchange rates, with the Euro slumping to a two-week low against the Pound before recouping its losses.
Today, the single currency is on the defensive again. The pullback in ECB rate rise bets may be pushing EUR lower, spurred on by weaker-than-forecast German GDP data.
The Eurozone’s largest economy stalled in the second quarter, after having fallen into a recession over the winter, rather than recovering by 0.1% as was forecast.
Furthermore, Eurozone economic sentiment declined more than expected in July, adding to EUR’s headwinds.
Pound (GBP) Firms on ECB-BoE Divergence
Meanwhile, the Pound is rallying against its European rival today despite a lack of UK data.
The upside in GBP/EUR may be due to possible policy divergence between the ECB and the Bank of England (BoE), with the latter holding its own interest rate decision next week.
While the ECB may now have finished its tightening cycle, markets are pricing in multiple further rate hikes from the BoE. UK inflation remains notably higher than in the Eurozone.
The British central bank is expected to raise interest rates by 25bps at its next meeting, but there is the outside chance of another 50bps hike.
Hawkish expectations may be supporting Sterling today.
Pound Euro Exchange Rate Forecast: German Inflation to Dent EUR?
Coming up, more high-impact German data could spell trouble for the Euro this afternoon.
Forecasters expect Germany’s latest consumer price index to show easing inflation in the Eurozone’s largest economy. This could add to expectations that the ECB may have raised interest rates to their peak.
Meanwhile, risk appetite could affect the currency pair. If we seen an improvement in the market mood, the riskier Pound could gain further ground against the safer Euro.
Looking to next week’s session, Monday could bring more sharp movement in GBP/EUR. The publication of the Eurozone’s second-quarter growth rate and latest consumer price index may spark notable volatility. Will cooling inflation and weak growth see the single currency slump?