Pound Euro (GBP/EUR) exchange rate rangebound with data in short supply
The Pound Euro (GBP/EUR) exchange rate is fluctuating this morning, as a lack of notable data leaves the currency pairing vulnerable to surmounting Bank of England (BoE) interest rate cut bets.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1706, virtually unchanged from this morning’s opening rate.
Pound (GBP) wavers amid soaring BoE rate cut bets
The Pound (GBP) is struggling to garner investor interest this morning amid a lack of economic data and heightening BoE interest rate cut bets.
Following last week’s influx of volatile UK data, which underscored significantly weak GDP and mild UK inflation, the odds of interest rate cuts occurring in the second quarter now stand at 70%, compared to 40% at the start of last week.
During this morning’s data light session, investors continue to place their bets on looming interest rate cuts as persistently high interest rates seemingly drive UK economic sluggishness, serving to dampen GBP sentiment.
Analysts at Goldman Sachs went as far as lowering their GDP forecasts for 2024, while affirming:
‘In sum, the tighter labour market and increased sales activity would skew risks towards a first cut in June.
Even so, the January inflation print surprised to the downside and supports our economists’ expectation of a first cut in May.’
Euro (EUR) muted amid data lull
The Euro (EUR) is trading without a clear direction this morning, with Eurozone figures in short supply.
EUR investors are holding steady, with an apparent reluctance to place any aggressive bets on the common currency ahead of further supporting data and amid increasingly unclear projections surrounding upcoming European Central Bank (ECB) monetary policy.
ECB policymaker, Isabel Schnabel, made the same case during an interview with the Financial Times last week, stating:
‘The last mile remains a concern. We are observing a slowdown in the disinflationary process that is typical for the last mile. This is very closely connected to the dynamics of wages, productivity and profits.’
However, sluggish inflation and slowing growth leaves economists and investors alike uncertain as to how much longer the ECB can push back against rate cuts, given its data-driven approach.
In the meantime, as policymakers continue to skirt around the topic of when loosening may occur, EUR may trade without a clear direction for the remainder of today’s session.
Pound Euro exchange rate forecast: Central Bank Speeches to drive volatility?
Looking ahead, a speech from European Central Bank (ECB) policymaker Edouard Fernandez-Bollo could influence EUR movement amid a lack of notable data on Wednesday. With markets currently betting on a June interest rate cut, any suggestion that of loosening monetary policy in the summer months could pressure the common currency, as rate cut bets rise.
For the UK, a speech from BoE dove, Swati Dhingra, on Tuesday is likely to be the core catalyst of GBP movement. As the only rate-setter to vote for a rate cut during the BoE’s last interest rate decision meeting, Dhingra will likely continue to advocate for looser monetary policy. This may see Sterling slump amid further suggestion of a looming May rate cut.
In the meantime, the Pound Euro exchange rate may be vulnerable to market volatility. The safe-haven Euro could strengthen amid a gloomy spell of trade, while a shift towards cheery trading conditions could see the increasingly risk-sensitive GBP take precedent.