Pound Euro (GBP/EUR) Exchange Rate Tumbles as Euro Benefits from USD Weakness
Article update 16:24, 4/8/23:
The Pound Euro (GBP/EUR) exchange rate is falling this afternoon, as the Euro benefits from a weakening US Dollar (USD).
Following the non farms payroll data, which showed the US created less jobs than forecast over July, EUR has begun to climb.
This is due to the negative correlation the single currency holds with the ‘Greenback’. Because of this, the GBP/EUR exchange rate has slipped from the morning’s narrow boundaries.
At the time of writing, GBP/EUR is trading at around €1.1563, falling by just under 0.4% from the morning’s opening rates.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Narrows amid Low-Growth UK Worries
The Pound Euro (GBP/EUR) exchange rate is trading within narrow boundaries this morning, as downbeat forecasts weigh on Sterling.
At the time of writing, GBP/EUR is trading at around €1.1613, showing little movement from the morning’s opening rates.
Pound (GBP) Listless as Markets Digest Low-Growth Forecasts
The Pound (GBP) is trading listlessly this morning, as markets continue to digest yesterday’s interest rate hike.
The Bank of England (BoE) hiked rates by 25bps, as markets anticipated, but appeared to provide dovish forward guidance. The bank’s forecasts for the UK economy were less-than-optimistic, indicating minimal growth in the medium term.
Commenting on what UK Chancellor Jeremy Hunt called a ‘low-growth trap’, Christoph Siepmann, Senior Economist at Generali Investments, stated:
‘While acknowledging that GDP growth held up better that previously expected, it nevertheless revised growth down 0.5% in 2024 (from +0.75%) and to 0.25% in 2025 (from 0.75%). We are still more pessimistic for this year and expect a stagnation.’
Similarly, the BoE expects inflation to fall sharply in the coming months. Because of this, the bank appears to have shifted to holding interest rates for longer, over further tightening.
While this is likely capping GBP, investors are conscious that BoE Governor Andrew Bailey has kept the door open for further tightening. This could be doing little to inspire GBP, owing to fears of overtightening.
Euro (EUR) Limited by Downbeat Retail Data
The Euro (EUR) is lacking in appeal this morning, following the publication of June’s retail sales data. On a monthly basis, sales fell by 0.3%, far below forecasts of a 0.2% increase.
With inflation and elevated interest rates continuing to bear down on EU consumers, the latest release is painting a worsening picture of the bloc.
Further bringing a headwind to the common currency may be Fitch Rating’s latest report. In this report, the agency stated that the European Central Bank (ECB) are likely nearing the terminal rate.
Because of this, investors are likely keeping any rate hike bets in check, leading to muted trade for the common currency.
However, a sharp rise in German factory orders this morning could be serving to underpin the Euro. Orders rose by 7% over June, significantly above forecasts of -2%.
GBP/EUR Exchange Rate Forecast: German Data in Focus
Looking ahead to early next week, Monday brings the release of the latest German industrial production data.
Over June, a 0.4% decline is forecast by economists, which could weaken EUR by indicating continued struggles in the German economy. However, if it surprises to the upside like this morning’s factory orders release, the Euro could strengthen.
For the Pound, meanwhile, data is in short supply at the start of next week. Because of this, Sterling could be left vulnerable to shifts in market mood.
If the market mood turns bearish, the increasingly risk-sensitive Pound may weaken against safer peers.