Pound Euro (GBP/EUR) Exchange Rate Fluctuates, Holds onto Friday’s Gains
The Pound Euro (GBP/EUR) exchange rate entered choppy waters as Tuesday’s European session commenced. GBP/EUR held onto Friday’s gains but fluctuated within a modest range amid mixed trading stimuli.
At the time of writing, GBP/EUR is trading at €1.1598, slightly below this morning’s opening levels.
Pound (GBP) Wavers as Optimistic Forecasts Counter Weak Retail Sales
The Pound (GBP) opened the weekly session trending gently upward against the Euro, perhaps buoyed by comments from the Bank of England (BoE)’s chief economist, Huw Pill, on Friday. Pill stated that the MPC was committed to achieving its target, implying that further hawkish action would not be discounted to bring down inflation.
Moreover, assessments that the UK’s cost-of-living crisis may be coming to an end could also be helping to boost Sterling morale. Ashley Webb of Capital Economics recently told reporters:
‘Overall, based on the real growth rate of earnings, the cost-of-living crisis may end as soon as July this year.’
Supporting Webb’s prediction, Huw Pill made further comments yesterday reassuring consumers that food inflation is on its way down and will likely fall to 10% by the end of the year. According to the latest reading from the Office for National Statistics (ONS), the annual rate of UK food and non-alcoholic beverage prices inflation increased to 19.1% in the 12 months to March 2023.
On the other hand, disappointing retail data from the British Retail Consortium (BRC) may cap GBP gains today. July’s sales monitor printed below expectations at 1.8%, as heavy rain in the UK deferred summer spending.
Euro (EUR) Trades Mixed, German Inflation Inspires Muted Reaction
The Euro (EUR) is trading in a mixed range today – up against riskier currencies such as the Australian Dollar (AUD) while subdued against its key trading partner, the US Dollar (USD).
Providing limited trading impetus this morning was the publication of Germany’s finalised inflation rate for the year to July. The data printed as expected at 6.2%, remaining close to May’s 14-month low.
Meanwhile, risk-off strength in the US Dollar weighs upon the single currency given the currencies’ strong negative correlation. Signs that the Chinese economy – the world’s second largest – is struggling to recover are dampening market morale and attracting support to the safe-haven ‘Greenback’.
Nevertheless, waning risk appetite explains the Euro’s strong performance against its comparatively risk-off peers.
Looking ahead, economists at Société Générale predict that EUR/GBP will trade broadly sideways through the remainder of the week:
‘EUR/GBP should remain rangebound between 0.8550 and 0.8655 until GDP data is published on Friday.’
GBP/EUR Forecast: US Data to Affect Exchange Rate?
The GBP/EUR exchange rate may trade according to US Fedspeak later today and into tomorrow. Policy divergence between the Federal Reserve and other major central banks has been a cause of friction recently – if Fed speakers Patrick Harker and Thomas Barkin strike a hawkish tone this afternoon, USD strength could weaken the Euro.
Later in the week, the latest US inflation report could also influence Pound-Euro trading. If headline inflation climbs as predicted, rate hike speculation could further buoy the ‘Greenback’, to the Euro’s detriment.