Pound Euro (GBP/EUR) Exchange Rate Narrows as Bailey Strikes Hawkish Tone
Article updated 16:11, 3/8/23:
The Pound Euro (GBP/EUR) exchange rate has recovered this afternoon, to return to around the morning’s opening levels.
While the Pound initially crashed following the Bank of England’s (BoE) rate decision, it has managed to lick its wounds.
BoE Governor Andrew Bailey took a moderately hawkish stance during the press conference. While he didn’t commit to further hikes, he iterated that rates needed to stay ‘sufficiently restrictive for sufficiently long’. In doing so, he pushed the potential for rate cuts firmly out of the equation.
However, with the UK economy remaining on a knife-edge amid persistent inflationary pressures, this hasn’t propelled Sterling against its peers.
At the time of writing, GBP/EUR is trading at around €1.1617, returning to level trade.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Falls amid Dovish BoE Hike
The Pound Euro (GBP/EUR) exchange rate is falling today, following the latest Bank of England (BoE) interest rate decision.
At the time of writing, GBP/EUR is trading at around €1.1573, falling over 0.4% from the morning’s opening rates.
Pound (GBP) Volatile as BoE Posts Dovish Hike
The Pound (GBP) is seeing volatile trade today, following the Bank of England’s 14th consecutive interest rate hike.
Interest rates are now at 5.25%, in-line with market expectations, as the BoE continues to fight inflation. However, the reaction has been negative.
While the door has been left open to further tightening should it be needed, the accompanying forecasts are more dovish. The forecasts have pointed to lower growth, and expect inflation to fall significantly in the coming months.
The Bank’s accompanying report states:
‘CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation.’
With this in mind, Sterling is unable to capitalise on the high interest rates as the UK economy remains embattled.
Elsewhere, the downbeat market mood is likely yielding further headwinds for GBP, due to it’s increasingly risk-sensitive nature.
Euro (EUR) Limited by Softening PPI
The Euro (EUR) is seeing limited trade this morning against most peers, following a softer-than-expected PPI reading.
Over June, PPI was found to have fallen by 0.4%, beyond forecasts of a 0.2% fall. With this in mind, investors appear to be further paring back their bets on further tightening from the European Central bank (ECB).
Furthermore, comments from ECB board member Fabio Panetta could be capping the Euro. In a speech, Panetta outlined a case for keeping rates high rather than hiking further.
Panetta stated:
‘Emphasising persistence may be particularly valuable in the current situation, where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced and economic activity is weak.’
However, the morning’s downbeat market mood is likely serving to keep EUR afloat against riskier assets, due to its safer nature.
GBP/EUR Exchange Rate Outlook: German Factory Orders Fall to Dent EUR?
Looking ahead for the Euro, tomorrow brings the release of the latest German factory orders data. Over June, orders are forecast to have plummeted by 2% on a monthly basis, which could weigh heavily on the Euro.
This is then followed by the latest retail sales data for the Eurozone as a whole. A monthly increase of 0.2% is expected by economists, which could negate these losses by indicating resilient consumer spending.
Elsewhere, the market mood is likely to play a role in shaping the single currency’s direction. As a safer asset, downbeat trade could bring support to the Euro against riskier assets.
Meanwhile, the Pound is likely to see volatile trade tomorrow, as markets continue to analyse the BoE’s latest interest rate decision.