Pound Euro (GBP/EUR) Exchange Rate Ticks Up despite Disappointing CBI Data

Pound Euro (GBP/EUR) Exchange Rate Climbs as Risk Appetite Strengthens

The Pound Euro (GBP/EUR) exchange rate is firming so far today, as risk-on sentiment in the markets buoys the more volatile Pound (GBP) against the safe-haven Euro (EUR). A downbeat release from the Confederation of British Industry (CBI) fails to depress Sterling morale.

At the time of writing, GBP/EUR is trading at €1.1726, more than 0.2% higher than this morning’s opening levels.

Pound (GBP) Remains Strong amid Renewed Bullish Sentiment

The Pound maintains the upper hand against the Euro today, pushing GBP/EUR higher as investors look to a hawkish Bank of England (BoE) to maintain price stability.

Traders are now confident that the UK’s central bank will use monetary policy tightening measures to further curb inflation, as last week’s labour report indicated that the economy was stable enough to withstand an additional interest rate hike.

This morning’s industrial trends release from the Confederation of British Industry printed below forecasts, yet failed to derail GBP momentum as morale remains upbeat. The release came in at –15 compared with –9 in July: worse than expectations of –13.

The CBI commented that the gauge measuring output for the past three months had fallen to its lowest reading since September 2020, with price expectations also waning. Economist Martin Sartorius observed:

‘With output volumes contracting at their fastest pace since the COVID-19 pandemic and order books deteriorating, this survey makes for gloomy reading. However, easing price pressures will bring some relief to many manufacturing firms and the broader economy.’

Elsewhere, Pound investors are eyeing political developments for potential ripple effects. UK PM Rishi Sunak is expected to enact a cabinet reshuffle ahead of the 2024 elections, in an attempt to meet his promise of halving inflation by the year’s end.

Euro (EUR) Trade Falters amongst lack of EU Data

The Euro is fluctuating against its peers today as strength in the US Dollar (USD) caps EUR gains. Furthermore, disagreement between members of the European Central Bank (ECB) relating to potential monetary policy tightening is weighing on morale.

Producer price inflation (PPI) in Germany fell by more than expected in the year to July according to yesterday’s data, prompting further conflict over the ECB’s monetary policy stance. Reuters analysts noted that the release is generally considered a key indicator for inflation, which in July eased to 6.5%.

Moreover, experts suggest that the Eurozone economy may not be strong enough to withstand another interest rate hike. The German Bundesbank said on Monday that Germany’s ‘lacklustre’ economy will likely stagnate again in the third quarter, fortifying predictions from the International Monetary Fund (IMF) that Germany will be the only major advanced economy to shrink in 2023.

Nevertheless, the ECB’s onward trajectory is not clear cut. ECB hawk Martins Kazaks, governor of the Central Bank of Latvia, resisted closing the door to further interest rates in a speech last week, instead saying:

‘If we look at the coming months, if there’ll be increases in interest rates then they’ll be really very small.’

GBP/EUR Exchange Rate Forecast: PMI Data to Direct Movement?

Into tomorrow, the Pound Euro exchange rate is likely to fluctuate according to the latest PMI data from the UK and the Eurozone.

Both manufacturing and services activity are expected to have increased in Germany and the bloc generally – although German manufacturing remains well in contraction territory. UK PMIs are also expected to print above last month’s release, leaving GBP and the Euro to vie for tailwinds.

US data is another factor that could influence the single currency; if USD momentum falters, EUR could enjoy a boost. US manufacturing is expected to have slowed in August, potentially sapping appeal for the ‘Greenback’.

Olivia Evershed

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