Pound Euro (GBP/EUR) exchange rate narrows as Eurozone consumer confidence fades
Article updated 16:35, 23/1/2024:
The Pound Euro (GBP/EUR) exchange rate is remaining tepid this afternoon, as an unexpected dip in Eurozone consumer confidence weighs on the Euro.
In January, confidence weakened from -15.1 to -16.1, reversing a recent trend of steadily decreasing pessimism.
The reading prompted EUR to fall against most other peers, although it managed to remain flat against Sterling.
At the time of writing, GBP/EUR is trading at around €1.1687, showing little movement from the morning’s opening levels.
Original article continues below:
Pound Euro (GBP/EUR) exchange rate flat despite improving UK Government borrowing
The Pound Euro (GBP/EUR) exchange rate is trapped in narrow boundaries this morning, despite better-than-forecast UK Government borrowing figures.
At the time of writing, GBP/EUR is trading at around €1.1672, showing little movement from today’s opening levels.
Pound (GBP) Cushioned by reduced Government borrowing
The Pound (GBP) is being underpinned this morning by better-than-expected public sector borrowing figures for December.
Borrowing decreased on a monthly basis from £-12.78bn to £-6.85bn, significantly beneath forecasts of a drop to £-11.2bn. This has prompted speculation that UK Chancellor Jeremy Hunt may have additional room for spring tax cuts, which could be positive for UK economic growth.
Ruth Gregory, Deputy Chief UK Economist for Capital Economics, commented:
‘With market interest rate expectations and long-dated gilt yields having fallen since November, we suspect the OBR will revise down its borrowing forecast significantly from 2025/26. That may provide the Chancellor with “headroom” against his fiscal mandate of about £20bn in the Budget.’
However, after providing Sterling with a brief spike against its peers, a lack of other data is keeping GBP exchange rates subdued.
Euro (EUR) mixed ahead of consumer confidence data
The Euro (EUR) is enduring mixed trade this morning, owing to a lack of high impact data releases. Additionally, a mixed market mood is likely serving to undermine the common currency against riskier assets.
Furthermore, EUR investors may be hesitant to support the Euro ahead of this afternoon’s Eurozone consumer confidence data.
Sentiment amongst consumers is expected to remain weak, but to have improved slightly in January, rising from -15 to -14.3. This may further dampen the common currency later in the session, as EU citizens continue to contend with high interest rates and persistent inflation.
Elsewhere, modest weakness in the US Dollar (USD) could be lending the Euro additional support. Due to the pairing’s negative correlation, as USD softens EUR may be cushioned against any staunch losses.
Pound Euro exchange rate forecast: UK PMIs in Focus
Looking ahead for the Pound, tomorrow brings the publication of the latest preliminary PMIs, reflecting January’s activity.
The UK’s service sector is forecast to have slowed from 53.4 to 53.2, which may weaken Sterling by suggesting weakening economic activity. This could amplify existing recession anxieties, bringing further headwinds for the Pound.
However, this could be offset by an improvement in the UK manufacturing index. While this is expected to remain in contraction territory, an increase could be a cause for optimism amongst GBP investors.
For the Euro, the core catalyst of movement is set to be the latest interest rate decision from the ECB. The central bank is likely to keep interest rates unchanged, following consistent hawkish rhetoric from policymakers and persistent inflation.
However, if the ECB suggests rate cuts are on the cards in the near future the Euro could soften against its peers.
Elsewhere, risk appetite is likely to play a role in shaping the pairing. Due to the Euro’s safer stature, bearish trade could weaken GBP/EUR.