Pound Euro (GBP/EUR) Exchange Rate Climbs on Central Bank Dynamics
The Pound Euro (GBP/EUR) exchange rate continues to climb today as the Bank of England (BoE) strikes a hawkish note while the European Central Bank (ECB) commits to bringing inflation down. Volatility in US Dollar (USD) exchange rates lent the Euro (EUR) moderate support overnight.
At the time of writing, GBP/EUR is trading at €1.1559, having risen by approximately 0.2% in the past 24 hours.
Pound (GBP) Buoyed by Bailey Speech
The Pound (GBP) is firming against its peers today as the Bank of England reiterates that interest rates will need to remain high into 2024. Given strong inflationary pressures in the UK, the bank is forced to keep restrictive policy in place.
Central bank divergence favours the Pound in this case as other central banks are already looking at cutting interest rates. By comparison, the BoE is in a hawkish position. In an interview this morning, Governor Andrew Bailey told markets:
‘We are not in a place now where we can discuss cutting interest rates – that is not happening.’
Elsewhere, the UK’s latest consumer credit reading printed below forecasts at £1.289bn for the month of October – the smallest increase in five months. Net borrowing through credit cards eased as living costs become more manageable, yet Sterling appeared to weaken slightly in the aftermath of the release.
A reduced rate of borrowing could indicate reduced spending, which may be denting GBP morale. Meanwhile, a further increase in the annual growth rate for all consumer credit suggests consumers are still struggling to make ends meet, turning to borrowing to fund household expenses. Sticky inflationary pressures support this hypothesis.
Euro (EUR) Gleans Limited Strength from USD Weakness
The Euro finds modest support against several peers this morning due to US Dollar weakness. The strong negative correlation between the currencies favours the single currency when USD comes under pressure.
Also lending support to the Euro may be comments from European Central Bank Vice President Luis de Guindos. De Guindos restated the bank’s commitment to bringing inflation down to 2% this morning, adding:
‘Rate hikes are both for borrowers and savers. That is part of our monetary policy transmission. If savings become more attractive, consumers will spend less, reducing demand. This is what we aim for to push down inflation.’
Looking ahead, traders await Germany’s flash inflation reading this afternoon. Consumer price inflation is expected at 3.5% on an annualised basis from 3.8% in October. If the data prints as expected, investors may be encouraged by the prospect of reduced living costs and economic recovery.
GBP/EUR Exchange Rate Forecast: Packed Calendar Tomorrow to Spark Trading Action?
Into tomorrow, the Pound Euro exchange rate is likely to trade in a wide range given the abundance of data due for release from the Eurozone and the US.
German sales data is expected to reveal in increase in October’s sales as the European session opens, potentially boosting EUR. Subsequently, unemployment in the bloc’s largest economy is expected to have increased through November, albeit by less than in the previous month.
Fresh inflation data from the bloc may override employment concerns at 10am. If inflationary pressures ease as expected, the ECB may be encouraged in plans for immanent interest rate cuts. Eurozone unemployment is then expected to print at 6.5% for the month of October, unchanged from September’s levels.
In the afternoon, the Fed’s preferred measure of inflation – the PCE price index – is forecast to show easing price pressures in the month of October. If the release is considered likely to prompt interest rate cuts, USD could weaken, buoying the Euro.
The Pound, meanwhile, is likely to trade upon risk dynamics and other external factors. A bullish market mood could propel GBP higher, while bearish sentiment may reverse some of this morning’s GBP/EUR gains.