Pound Euro (GBP/EUR) Exchange Rate Remains Flat as Rate Hike Bets Diminish

Pound Euro (GBP/EUR) Exchange Rate Remains Flat as Central Bank Tightening Bets Fall

Article updated 16:12, 08/09/2023:

The Pound Euro (GBP/EUR) exchange rate has remained narrow this afternoon, as bets on interest rate hikes from both central banks continue to fall.

Both the UK and Eurozone economic outlooks have deteriorated in recent weeks, leading to the perception that any further hikes are likely to be the final ones.

Because of this, the increasingly risk-sensitive Pound has been unable to capitalise on the shift to risk-on trade.

However, the Euro is likely earning some cushioning as the US Dollar (USD) continues to weaken. This is due to the pairing sharing a negative correlation.

At the time of writing, GBP/EUR is trading at around €1.1649, showing little deviation from today’s opening rates.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Narrows amid Receding BoE Hike Bets

The Pound Euro (GBP/EUR) exchange rate is trading in narrow bounds this morning. Investors are adjusting their bets on further rate hikes from the Bank of England (BoE), muting GBP’s appeal.

At the time of writing, GBP/EUR is trading at around €1.1660, showing little movement from the morning’s opening rates.

Pound (GBP) Subdued as Investors Adjust BoE Bets

The Pound (GBP) is seeing subdued trade this morning, as the short supply of data prevents GBP from strengthening.

Investors are continuing to recalibrate their bets on addition interest rate hikes from the Bank of England (BoE), following the latest decision maker panel information.

This surveys Chief Financial Officers (CFOs), and found growing belief that price and wage growth would fall over the next year. Similarly, inflation is expected to fall to 4.9% over the next year.

In turn, this seems to be adding fuel to notions that the BoE are nearing a pause in the current tightening cycle. James Smith, at ING, commented:

‘Governor Andrew Bailey’s indication that we’re near the top of the tightening cycle came wrapped with several caveats. But it fits into a broader communication exercise from the Bank that appears to be laying the ground for a pause.

Chief Economist Huw Pill’s reference to a “table mountain” profile for rates gave a further indication that the Bank is now more concerned about how long rates stay elevated rather than how high they peak. References to policy now being “restrictive” in the August policy statement pointed in this direction too.’

Euro (EUR) Muted amid Light Data Calendar

The Euro (EUR) is enduring muted trade this morning, as a lack of data keeps the focus on yesterday’s downbeat releases.

The Eurozone’s second quarter GDP was revised down, from 0.3% to 0.1%, which prompted renewed recession anxieties.

Because of this, analysts are weighing up the likelihood of further interest rate hikes from the European Central Bank (ECB).

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:

‘As for next week’s European Central Bank meeting, the market now prices just 8p of rate hikes. And there is some focus too that the ECB might just lift the main refinancing rate (now 4.25%) while keeping the deposit rate unchanged at 3.75%. We doubt such a move would help the euro much.’

Elsewhere, a wavering market mood may be doing little to inspire EUR investors. With riskier assets in favour, the safe-haven common currency is struggling to attract support this morning.

Pound Euro Exchange Rate Forecast:

Looking ahead, the core catalyst of movement for the Pound is likely to be July’s unemployment and wage growth data.

Due Tuesday, the unemployment rate is expected to hold, while wage growth is forecast to have cooled. This could prompt mixed trade, as cooling wage growth may lead to diminished hike bets, despite strong labour data.

For the Euro, the ZEW economic sentiment index for Germany is due to print on Tuesday. Over September, sentiment is forecast to edge lower which could weigh on the common currency.

John Mulcahey

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