Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Cooling Eurozone Inflation
The Pound Euro (GBP/EUR) exchange rate is moving without a clear trajectory this morning as markets digest the Eurozone’s cooler-than-forecast inflation data.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1580, virtually unchanged from this morning’s opening rate.
Euro (EUR) Stumbles on Eurozone Inflation Data
The Euro (EUR) faces selling pressure this morning following the Eurozone’s latest consumer price index.
Eurozone inflation was shown to have risen 2.4% year-on-year this month, falling from 2.9% in October. The data also shows that inflation in the Euro bloc is cooling faster than expected, coming in below forecasts of 2.7%.
Amid the rapid fall in inflation, EUR investors are now certain that the European Central Bank (ECB) has concluded its tightening cycle, leading to pared interest rate hike bets today.
Bert Colijn, senior Eurozone economist at ING, commented that sluggish economic activity is likely to curb inflation, allowing the ECB to reach its 2% target and achieve a ‘soft landing’ heading into the winter months.
Colijn notes:
‘There is still a lot more of the impact of tightening to come as interest payments are still increasing. The market is therefore right to start looking at rate cuts for 2024. We think the first one could well happen before the summer.’
While economists and investors alike speculate forthcoming rate cuts, the common currency may come under additional pressure as Thursday’s session progresses.
Pound (GBP) Fluctuates amid Economic Uncertainty
The Pound (GBP) is moving without a clear trajectory this morning amid a lack of fresh UK data.
While increasingly hawkish rhetoric by Bank of England (BoE) policymakers this week has lent Sterling some modest support, an absence of data leaves GBP vulnerable to ongoing economic pessimism.
Yesterday, the Organisation for Economic Co-operation and Development (OECD) warned that recession risks remained high in the UK as well as globally in their economic forecast.
Clare Lombardelli, Chief Economist at Thinktank, commented on the OECD’s outlook, stating:
‘The risks of getting policy wrong are higher than they have been. It is unclear how much of the past tightening has fed through and how much is yet to come.’
While the extent to which the BoE’s 14 interest rate hikes have hit the wider economy remains unclear, investors remain hesitant to place any aggressive bets on Sterling. As such economic uncertainty appears to stifle GBP movement today.
Pound Euro Exchange Rate Forecast: Hawkish BoE Speech to Buoy Sterling?
Looking ahead, a speech from BoE policymaker Megan Greene is due later today. As a more hawkish member of the Monetary Policy Committee (MPC), Greene is likely to echo her cohort’s ‘higher for longer’ stance towards interest rates. This may continue to buoy GBP as UK data remains in short supply.
Looking to the Eurozone, a series of speeches are due this afternoon from ECB policymakers, including one from President Christine Lagarde. Following this morning’s cooler-than-forecast inflation report, policymakers may strike a more dovish tone as inflation in the Eurozone continues to move on a downward trajectory.
In the meantime, the increasingly risk-sensitive Pound may remain vulnerable to shifts in market sentiment. Upbeat trade could see GBP gain ground against the safe-haven EUR.
The Eurozone’s finalised manufacturing PMI is also due for release tomorrow, though is unlikely to drive considerable movement following last week’s preliminary readings. However, any significant deviations from forecasts may spark EUR volatility.