Pound Euro exchange rate fluctuates amid data lull
The Pound Euro (GBP/EUR) exchange rate is trapped in a narrow range this morning with both UK and Eurozone data in short supply.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1644, virtually unchanged from this morning’s opening rate.
Euro (EUR) wavers despite hawkish ECB commentary
The Euro (EUR) is trading without a clear trajectory this morning as a lack of notable data leaves the common currency vulnerable to central bank commentary.
Markets appear to be resizing interest rate cuts bets, with recent data highlighting that it may be too soon to consider early rate cuts.
ECB President Christine Lagarde affirmed market speculations that interest rates may remain high until the summer months during a speech last night:
‘Short of another major shock we have reached a peak. But we have to stay restrictive for as long as necessary. The risk would be we go too fast on rate cuts and have to come back and do more rate increases.’
Renewed signs of sticky inflation and economic sluggishness in Germany and the wider Eurozone in recent days have served to undermine the likelihood of a spring rate cut due to the European Central Bank’s data driven approach towards monetary policy. However, the Euro remains rangebound so far today, with a lack of economic data to underpin Lagarde’s hawkish commentary.
Pound retreats from post-inflation wins
The Pound (GBP) is trading without a clear direction today with UK data in short supply.
Sterling retreated overnight from yesterday’s surge, as markets settled in the wake of warmer-than-expected UK inflation. While investors initially dialled down Bank of England (BoE) interest rate cut expectations, some analysts have argued that unexpected inflationary warming may be anomalous, as UK inflation continues to move on a downward trajectory, when looking at the bigger picture.
Michael Saunders, a former BoE policymaker, argued:
‘The bigger picture is that inflation is falling more sharply overall than the Bank of England had expected a few months ago. Their thoughts will be starting to turn towards interest rates possibly coming down later this year … perhaps starting around the middle of the year.’
Pound Euro exchange rate forecast: UK retail sales to dent GBP?
Looking ahead, the UK’s latest retail sales data is due out tomorrow and is likely to be the core catalyst for GBP movement. Economists expect to see a 0.5% contraction in the retail activity throughout December of last year.
This may place additional pressure on the looming question of BoE rate cuts, as continual economic contraction pushes BoE policymakers to cut rates in the first half of the year, thereby denting Sterling.
Looking to the Eurozone, Germany’s latest PPI data is also due out on Friday. A forecast contraction of 0.5% could see the Euro falter, with declining factory inflation pointing to overall disinflation in the wider German economy. Continually cooling inflation in the Eurozone may see ECB rate cut bets rise once again, denting the common currency.
In the meantime, the Pound Euro exchange rate vulnerable to shifts in risk appetite. Escalating geopolitical tensions are serving to offset renewed global inflationary pressures, as concerns of soaring oil prices repeatedly push investors towards risk averse currencies amid an anxious market sentiment.
Should gloomy trade continue, the safe-haven Euro could take precedent over the increasingly risk-sensitive Pound. However, any shifts towards cheery trade may see Sterling strengthen.