Pound Euro (GBP/EUR) Exchange Rate Stumbles as BoE Extends Pause
The Pound Euro (GBP/EUR) exchange rate is weakening today, following news that the Bank of England (BoE) left interest rates unchanged.
At the time of writing, GBP/EUR is trading at around €1.1473, falling by around 0.3% from today’s opening rates.
Pound (GBP) Rocked as BoE Leaves Rates Unchanged
The Pound (GBP) is seeing volatile trade today, as investors react to another hold from the Bank of England.
The BoE elected to keep interest rates at 5.25%, fuelling perceptions that the bank had reached the end of its tightening cycle.
Additionally, the BoE’s forecasts for the UK economy were much bleaker than before. The minutes from the decision state:
‘UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than projected previously.’
With this in mind, investors may be hesitant to support Sterling in the wake of downbeat projections.
However, the risk-on market mood may be serving to cushion the increasingly risk-sensitive Pound. As central banks across the globe appear to have reached the end of their tightening cycles, investors are seeming optimistic about global growth prospects.
Euro (EUR) Rises as US Dollar Falters
The Euro (EUR) is on the march this morning, as it takes advantage of a weakening US Dollar (USD). Following last night’s inaction from the Federal Reserve, the ‘Greenback’ has begun to fade.
With the Fed opting to keep interest rates unchanged, the perception is growing that it has reached the end of its tightening cycle. Because of this, the market mood has brightened holistically, as attention turns to global economic improvement.
As the pairing shares a negative correlation, this weakness is allowing the common currency to shrug off weak German data.
While German labour data is rarely seismic in its effects on EUR exchange rates, news of an increase in unemployment may cap EUR’s gains somewhat.
As the Eurozone’s largest economy, the increase to 5.8% from 5.7% in October may prompt modest fears around German employment.
Pound Euro Exchange Rate Forecast: German Trade Data in Focus
Looking ahead for the Euro, the core catalyst of movement is likely to be September’s German trade data, due to print tomorrow.
Economists anticipate a contraction in Germany’s trade surplus, which could weigh on the common currency. The German economy relies on exports, and signs of deterioration could weaken the wider Eurozone economic outlook.
This is followed by the Eurozone’s unemployment rate for September. Forecasts are for the rate to have remained unchanged on a monthly basis, which could boost EUR. If employment remains robust in the bloc, it may give the European Central Bank room for future tightening.
For the Pound, the final reading of October’s services PMI is due for publication. If this confirms further weakness in the sector, Sterling may struggle for support as the UK economic outlook remains faintly miserable.