Pound Euro (GBP/EUR) exchange rate fluctuates near seven-day low

Pound Euro (GBP/EUR) exchange rate mixed amid sour EUR sentiment

The Pound Euro (GBP/EUR) exchange rate is changeable this morning amid mixed data and market volatility.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1689, virtually unchanged from this morning’s opening rate.

Euro (EUR) stumbles amid cheery trade

The Euro (EUR) is moving without a clear trajectory this morning as market sentiment overrides upbeat German data releases.

An unexpected rise in German factory orders kept EUR afloat as the session opened, reporting the strongest factory growth since June 2020, at 8.9%.

However, a larger-than-forecast decline in Eurozone retail sales in December appears to be limiting the Euro’s upside, with retail activity in December reportedly contracting by 1.1%.

EUR’s gains are further capped by an increasing appetite for risk, following a surge in Chinese shares and a notably hawkish shift in the Reserve Bank of Australia’s (RBA), which serve to pressure the safe-haven Euro into today’s session.

Furthermore, while the US Dollar (USD) stands at a twelve-week high, following Federal Reserve Chair Jerome Powell’s tightening bias, EUR’s negative correlation with the ‘Greenback’ is preventing any notable movement in the common currency this morning.

Pound (GBP) wobbles amid loosening retail activity

The Pound (GBP) is facing headwinds this morning, as renewed concerns about declining consumer activity pressure Sterling exchange rates.

The British Retail Consortium’s (BRC) retail sales monitor reported a 1.4% year-on-year increase in January 2024, showing the slowest growth in 15 months.

Further signs of decreasing consumer confidence and retail spending fuel the case for Bank of England (BoE) interest rate cuts sometime in the second quarter. While persistently high interest rates stifle UK spending for the average Briton, BoE rate cut bets continue to rise.

Victoria Scholar, Head of Investment at Interactive Investor, explains how a third year in Britain’s cost-of-living crisis worsens consumer activity:

‘While 2024 may be the year that interest rate cuts kick in and real incomes grow, consumers are still grappling with much higher prices than they were a few years ago and higher mortgage payments on top.’

Pound Euro exchange rate forecast: Germany industry to decelerate further?

Coming up, the release of the latest industrial production data is due out in Germany tomorrow. Economists expect to see industry activity drop 0.4% month-over-month in December 2023, decelerating from a 0.7% drop in November’s data. Should the data print in line with expectations the Euro will most likely slump under a seventh consecutive negative reading.

Looking to the UK, a lack of economic data may leave GBP vulnerable to commentary from the Bank of England. Investors may look to BoE policymakers Sarah Breeden and Sam Woods, due to speak tomorrow, for further signs that the central bank is on the way towards loosening monetary policy. In the wake of BoE Governor Andrew Bailey’s dovish tilt last week, further indication that a summer rate cut remains could see GBP falter.

Similarly, speeches from European Central Bank policymakers Pierre Wunsch, Frank Elderson and Philip Lane could drive EUR movement amid a lack of notable data releases on Thursday. While ECB President Christine Lagarde continues to advocate that interest rates should remain high, deviation from the hawkish narrative may see EUR fall.

Yasmine Arasteh

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