Pound Euro (GBP/EUR) exchange rate wavers with data in short supply
The Pound Euro (GBP/EUR) exchange rate is muted this morning as ongoing concerns about the health of the UK’s economy and an upbeat market mood limit the currency pairing’s movements.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1662, virtually unchanged from this morning’s opening rate.
Pound (GBP) quiet amid data lull
The Pound (GBP) is quiet this morning, with UK data in short supply.
As such, investors appear reluctant to place aggressive bets on Sterling amid revived concerns that the UK fell into a technical recession during last year’s ‘Golden Quarter’. Speculation that two consecutive quarters of negative GDP in the UK may have occurred leave the Pound on the defensive today.
Martin Beck, Chief Economic Advisor to the EY ITEM Club commented:
‘We know that GDP – gross domestic product – shrunk in the third quarter and looking at the high frequency numbers for Q4, there’s a good chance that it may have shrunk slightly again.’
Similarly, last week’s staggering contraction in UK retail sales continues to weigh heavily on the Pound. A worse-than-expected decline of 3.2% drastically soured Sterling sentiment as the week drew to a close, as investor interest plummeted.
However, seemingly cushioning the increasingly risk-sensitive Pound’s losses this morning is a cheery spell of trade. An increasing appetite for risk may serve to keep GBP afloat as today’s session continues.
Euro (EUR) muted ahead of ECB speech
The Euro (EUR) is muted this morning ahead of a European Central Bank (ECB) speech due this afternoon.
ECB President Christine Lagarde is due to speak later today, with investors and analysts alike expectant that she will continue to push her restrictive stance towards interest rates.
Marco Valli, an economist at Italian bank UniCredit, argues that Lagarde will most likely maintain the central bank’s increasingly hawkish narrative, advocating for continued rate holds, using the ECB’s data driven approach to monetary policy.
Valli went on to argue that an April rate cut may remain unlikely, unless ‘an unexpected disinflationary shock’ occurs, forcing the ECB to reassess. Ahead of Lagarde’s commentary, the Euro may remain quiet for the remainder of the session.
Pound Euro exchange rate forecast: market volatility to drive movement?
Looking ahead, a lack of notable data in both the Eurozone and the UK may leave the Pound Euro currency painting to trade on market sentiment. As geopolitical tensions continue to escalate rapidly in the Middle East, a shift towards gloomy trading conditions may see jittery investors opt for the safe-haven Euro. However, an upbeat mood could buoy the increasingly risk-sensitive Pound.
Later in the week, the Eurozone’s latest purchasing manager index’s (PMIs) are due and could drive significant EUR volatility. Signs that contraction will have occurred at a slower pace in January than in previous months may lend the Euro some modest support.
Much like its Eurozone counterpart, UK PMIs are also due on Wednesday and are likely to be a core catalyst of movement. The vital services sector is due to expand in January for a third consecutive month, up to 53.5, which could boost GBP. However, ongoing contractions in the manufacturing sector could hinder the Pound’s upside potential.