Pound Euro Exchange Rate Remains Muted amid Pullback in BoE Rate Hike Bets

Pound Euro (GBP/EUR) Exchange Rate Subdued as Both Currencies Face Headwinds

(Updated 15:10, 07/09/23) The Pound Euro (GBP/EUR) exchange rate wavered today, having earlier touched a one-week low, as both currencies came under pressure.

The Pound (GBP) initially slipped against the Euro (EUR) this morning as markets continued to digest dovish remarks from Bank of England (BoE) Governor Andrew Bailey yesterday.

However, the common currency faced headwinds of its own, allowing Sterling to recoup initial losses.

German industrial production contracted more than forecast in July, printing at -0.8% rather than -0.5%.

This was followed up by the Eurozone’s third GDP growth rate estimate, which was revised lower. According to the latest reading, the bloc’s economy expanded just 0.1% in the three months from April to June. Previous estimates recorded 0.3% growth.

This helped GBP/EUR to bounce off a one-week low, although Sterling still remains subdued.

A large slump in UK house prices fuelled expectations that the BoE may soon stop raising interest rates. In addition, a new survey showed that British businesses expect to increase prices and wages at a slower pace, further denting BoE bets.

At the time of writing, GBP/EUR is trading at €1.1645, down a modest 0.1% on the day.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Falls following BoE Remarks

The Pound Euro (GBP/EUR) exchange rate slid to a one-week low this morning as dovish comments from Bank of England (BoE) Governor Andrew Bailey yesterday continue to weigh on Sterling.

At the time of writing, GBP/EUR is trading at around €1.1651, having bounced off an earlier low of €1.1632.

Pound (GBP) Weakens as Markets Reprice BoE Bets

The Pound (GBP) is on the back foot today as investors digest yesterday’s dovish remarks from BoE Governor Bailey.

Speaking in front of MPs from the Treasury Select Committee, Bailey reiterated that he still expects to see a ‘quite marked’ fall in inflation by the end of the year.

The BoE chief also said: ‘I think we are much nearer now to the top of the cycle’, indicating that the bank may soon be done with raising interest rates.

These comments – paired with recent recession fears – saw markets reprice their expectations for more policy tightening from the British central bank, causing GBP to fall sharply.

Investors are continuing to adjust their positions today, prompting further losses in the Pound.

Meanwhile, new data from the BoE this morning adds to the narrative that inflation will ease. The Decision Maker Panel survey shows that UK businesses expect to raise prices and wages at a slower rate over the next 12 months.

Euro (EUR) Limited by German Data

The Euro (EUR) may be finding its gains against the Pound capped this morning following new downbeat data from Germany.

Industrial production in the Eurozone’s largest economy contracted 0.8% in July. This was worse than the forecast drop of 0.5% and represented the third consecutive month of contraction.

The data also follows on from yesterday’s huge 11.7% slump in Germany factory orders in the same month.

Despite concerns about Germany’s economy, the Euro is still strengthening against the weakening Pound this morning.

A downbeat market mood may be helping the safer single currency move higher against the increasingly risk-sensitive Pound.

Pound Euro Exchange Rate Forecast: Sterling to Stay Subdued?

Looking ahead, Sterling could remain on the defensive against the single currency today amid ongoing worries about the British economy.

Any fresh UK headlines highlighting the country’s bleak economic outlook could pile further pressure on the Pound.

The current gloomy mood in markets may also weigh on the GBP/EUR exchange rate, with risk-averse investors favouring the safer Euro over the Pound.

However, anxiety over the state of the Eurozone economy – particularly following the recent dire German data – could cap EUR’s upside potential.

Samuel Birnie

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