Pound Euro (GBP/EUR) Exchange Rate Sheds Gains in Absence of Data
(Updated 14:15, 09/11/23) The Pound Euro (GBP/EUR) exchange rate relinquished its earlier gains today as Sterling failed to hold the high ground amid a lack of UK economic data.
After rising against the Euro (EUR) this morning, the Pound (GBP) has since retraced its steps. GBP investors may have had second thoughts ahead of tomorrow’s British GDP data, which is forecast to show a contraction in the UK economy in the three months from July to September.
A pullback in Bank of England (BoE) interest rate hike bets could also have hurt Sterling. This morning, BoE Chief Economist Huw Pill said that he believes the bank will not need to raise interest rates again to return inflation to its 2% target.
Meanwhile, a dip in the US Dollar (USD) may have lent the Euro support, as EUR is negatively correlated with USD.
At the time of writing, GBP/EUR is trading at €1.1459. This is down from an earlier high of €1.1502 and virtually unchanged from its opening levels.
The focus moving forward is a speech from European Central Bank (ECB) President Christine Lagarde this evening. If Lagarde strikes a dovish tone, we could see GBP/EUR regain the upside.
Tomorrow, the UK GDP data is in the spotlight. Could an economic contraction fuel recession fears, thereby seeing Sterling end on a sour note?
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Ticks Higher despite Quiet Trade
The Pound Euro (GBP/EUR) exchange rate is climbing this morning, without a clear catalyst for the movement. Central bank policy expectations may be boosting demand for Sterling over the single currency.
At the time of writing, GBP/EUR is trading at €1.1501, up almost 0.3% on the day.
Pound (GBP) Firms despite Lack of Data
The Pound (GBP) is enjoying support this morning, despite a lack of fresh economic data.
Sterling’s strength could be due to the Bank of England’s (BoE) relatively hawkish stance compared to the European Central Bank (ECB).
Last week, three BoE policymakers voted against the grain in favour of an interest rate hike, showing an appetite for more tightening among some members of the Monetary Policy Committee.
This is in contrast to the ECB, where the bank has signalled clearly that it believes it is done raising rates.
UK inflation currently stands at 6.7%, while Eurozone inflation is much lower at 2.9% – nearing the ECB’s target. Some investors believe the BoE may have more work to do on interest rates, and this may be supporting Sterling today.
However, BoE Chief Economist Huw Pill has recently made some dovish comments, including this morning.
Delivering a presentation to the Institute of Chartered Accountants in England and Wales, Pill said that he believes inflation will fall without interest rates needing to go higher. This could begin to weigh on GBP this morning.
Euro (EUR) Softens amid Gloomy Eurozone Outlook
Meanwhile, the Euro (EUR) is softening against the Pound today as EUR investors await a speech from ECB President Christine Lagarde.
In the meantime, traders are left to mull recent gloomy Eurozone data, with yesterday’s retail sales report showing a larger-than-forecast 0.3% contraction in sales. The report is the latest sign of stress in the Eurozone economy.
Commenting on the bloc’s economic prospects this morning, ECB Vice-President Luis de Guindos said that the growth outlook is more negative than previously projected.
This could be pressuring EUR exchange rates today.
Pound Euro Exchange Rate Forecast: UK GDP in the Spotlight
Looking ahead, European Central Bank President Christine Lagarde is due to speak this evening. If the ECB chief fuels expectations that the bank is done raising interest rates then the single currency could face heavy selling pressure.
As for the Pound, UK data is thin on the ground today, with GBP investors looking ahead to tomorrow’s GDP report.
Analysts expect the British economy to have contracted by 0.1% in the third quarter, as higher interest rates stifle growth. Such a result could stoke recession fears, potentially pushing the Pound lower.
If the GDP data prints worse than expected then Sterling could slump. Conversely, a stronger-than-forecast reading may help GBP gain ground.