GBP/EUR Exchange Rate Subdued in Bearish Trade
(Updated 14:00 2/8/2022) The Pound Euro (GBP/EUR) exchange rate trades on the back foot this afternoon, having shed the modest gains seen this morning.
The GBP/EUR exchange rate is now at risk of dropping to €1.15 as a souring market mood undermines the increasingly risk-sensitive Sterling.
Market sentiment has deteriorated following a downgrading of the US government’s credit rating.
In contrast, the Euro’s safe-haven status allows it to benefit from the bearish trading conditions.
Original article continues below:
Pound Euro Exchange Rate Steady Ahead of BoE Rate Decision
The Pound Euro (GBP/EUR) exchange rate is trading sideways this morning as markets brace for the Bank of England’s (BoE) latest interest rate decision.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1642. Virtually unchanged from this morning’s opening rate.
Pound (GBP) to Jump if BoE Delivers a Hawkish Interest Rate Decision?
The Pound (GBP) faces some potentially volatile trading conditions later this week as the BoE concludes its latest policy meeting on Thursday.
The BoE is widely tipped to deliver its 14th consecutive interest rate hike. Markets predict the Monetary Policy Committee will back a 25bps increase.
GBP investors had previously speculated the BoE could opt for another 50bps increase this month. However, these bets were curtailed by the UK’s weaker-than-forecast June inflation figures.
James Smith, developed market economist at ING, comments:
‘Welcome news on UK inflation has taken a fair amount of pressure off the Bank of England to repeat the 50 basis point rate hike it implemented in June.’
But there is still an outside chance of a 50bps increase, particularly in the face of record UK wage growth. If the BoE surprises with the larger hike, the GBP/EUR exchange rate could retest the nine-month high struck in mid-July.
Even if the BoE opts for a 25bps increase there is scope for the Pound to rally tomorrow. If, in contrast to the Federal Reserve and European Central Bank (ECB), the BoE signals more rate hikes are likely, GBP/EUR may rebound above €1.17.
Euro (EUR) Subdued amid Limited Eurozone Data
The Euro (EUR) is struggling to find support this morning. The absence of any notable Eurozone data leaves the single currency with limited direction.
EUR sentiment also remains muted amid subdued ECB rate hike expectations in the wake of last week’s meeting.
Elsewhere the Euro’s negative correlation with the US Dollar (USD) is extending some modest pressure. But given the limited upside in USD following yesterday’s US credit rating downgrade, EUR remains within normal intraday trading levels.
Pound Euro Exchange Rate Forecast: Plunge in Eurozone PPI to Weigh on EUR?
In the run up to the BoE’s rate decision, movement in the Pound Euro (GBP/EUR) exchange rate may be driven by the publication of the Eurozone’s latest PPI figures
These are forecast to report producer prices nosedived on an annualised basis in June. Producer prices generally feed through to consumers in subsequent months, so the figures could weaken inflation expectations.
This in turn is likely to dampen ECB rate hike bets and pull the Euro lower.
The Euro may also be pressured by July’s finalised Services PMI as it is set to confirm growth in the bloc’s service sector slowed to a six-month low.
Meanwhile, barring a major revision in the UK’s finalised services PMI, the index’s impact on the Pound is likely to be limited ahead of the BoE’s rate decision later in the afternoon.