Pound Euro (GBP/EUR) Exchange Rate Rangebound following German Data and BoE Comments
The Pound Euro (GBP/EUR) exchange rate is trading sideways today as an unexpected contraction in German factory orders stymies the European currency and cautious comments from the Bank of England (BoE) pressure the Pound (GBP).
At the time of writing the GBP/EUR exchange rate is trading at €1.1666, virtually unchanged from this morning’s opening level.
Euro (EUR) Resists Losses despite Plummeting German Factory Orders
The Euro (EUR) holds steady against the Pound today despite a shock contraction in German factory orders this morning.
The report showed that factory orders in Germany declined by 3.7% in October, a stark contrast to the 0.2% gain that was forecast. This unexpected fall comes a month after an upwardly revised 0.7% increase, signifying a weakening German industrial sector.
Furthermore, Eurozone retail sales data was also released earlier today, reporting a 0.1% increase in October. This is the bloc’s first expansion in sales following a four-month period of no growth. Although this is a positive reading, the results still came in below market forecasts which may undermine the single currency moving forward.
Nevertheless, the Euro was still able to resist losses against its weaker peers.
Pound (GBP) Dips following Cautious BoE Speech
The Pound is on the back foot today, following Bank of England Governor Andrew Bailey’s speech this morning.
Policymakers have recently been signalling that markets are underestimating how long interest rates will remain high. Bailey’s speech reiterated that interest rates could stay at current levels, however he sounded more cautious than in recent weeks.
Bailey said:
‘Rates are likely to need to remain at these levels for an extended period to bring inflation back to target on a sustained basis…. The full effect of higher interest rates is yet to come through. Therefore, we remain vigilant to financial stability risks that might arise.’
Markets interpreted Bailey’s tone as being less hawkish than in previous speeches, as he opened the door to the possibility of an interest rate cut sooner than expected.
The Governor’s underwhelming cautious tone hasn’t lent the Sterling much support so far, as the riskier Pound fluctuates against its safer counterparts.
Pound Euro Exchange Rate Forecast: Euro Could Climb if Data Meets Expectations
Looking ahead, German industrial production is set to be released tomorrow. It is predicted to show a modest 0.2% recovery in October, after a 1.4% contraction for the previous month. This could boost EUR if the data prints as expected.
However, coming off the back of today’s shocking plunge in German factory orders, if industrial production data follows suit with an unexpected decline, this could put pressure the European currency.
Also due for release tomorrow is the Eurozone’s third estimate for Q3 GDP growth, which is unlikely to impact EUR unless it strays heavily from the previous estimates.
Looking at the Pound, a significant lack of any new, notable UK data in the next few days will likely leave GBP vulnerable to the ever-changing market mood. If risk appetite continues to shift, the increasingly risk-sensitive Pound could face volatility.