Pound Euro (GBP/EUR) exchange rate starts the week flat
The Pound Euro (GBP/EUR) exchange rate is trending in a narrow range this morning as a lack of domestic economic stimuli leaves both currencies exposed to external factors. Uncertain risk sentiment compounds traders’ bearish stance.
At the time of writing, GBP/EUR is trading at €1.1678, virtually unchanged from yesterday’s equivalent reading.
Pound (GBP) finds limited support amid Spring Budget optimism
The Pound (GBP) is inching higher against several peers this morning despite remaining flat against the Euro (EUR). Tailwinds may be attributed to markets’ optimism ahead of the UK’s Spring Budget.
The Budget will be announced on Wednesday: already, British newspapers are rife with speculation. It is said that Chancellor Jeremy Hunt has committed to a Research and Development (R&D) package worth £360 million, aimed at making the UK ‘a world leader in manufacturing’.
Not all assessments are positive, however. The New Economics Foundation reports that if National Insurance tax is cut as predicted, the richest households will benefit 12 times more than the poorest in cash terms.
The thinktank released a statement saying: ‘If the chancellor announces a 1p cut to national insurance in this week’s budget, it will benefit the richest 20% of households 12 times more than poorest 20%, with those on the highest incomes receiving an additional £424 per year compared to £34 per year for those on the lowest.’
Yet GBP morale remains largely upbeat. Lending additional support may be bullish expectations for the Bank of England’s (BoE) monetary policy outlook: the fact that UK inflation is the highest among all G7 economies indicates that the BoE will cut interest rates later than other central banks.
Euro (EUR) gains capped by central bank uncertainty
The Euro is struggling to gain against the Pound yet finds support in other exchange rates this morning despite central bank uncertainty.
Investors are unsure when the European Central Bank (ECB) may begin loosening monetary policy following last week’s inflation data. Friday’s release showed that annualised core inflation grew by 3.1% against expectations of 2.9% – but that the pace was lower than at the start of 2024.
Recent speeches from ECB officials have been fairly hawkish, lending some reassurance to concerned markets. Governing Council member Peter Kazimir said last Wednesday that the central bank should not rush into cutting interest rates; his words were substantiated by forecasts from experts at Nordea, who said:
‘Given the new inflation numbers and our view on a gradually cooler labour market we continue to expect the ECB to start cutting rates in June. The chances that rates would be cut earlier are rather small after today’s inflation numbers.’
Lending additional tailwinds to Euro exchange rates may have been this morning’s investor confidence index from Sentix. While not highlighted as a key release on economic calendars, a fifth month of improvement in confidence could nevertheless be interpreted as a positive sign.
GBP/EUR exchange rate forecast: UK retail to trigger uptrend?
The Pound Euro exchange rate may trade tomorrow upon the UK’s latest retail sales monitor from the British Retail Consortium (BRC). The release is expected to reveal an improvement in sales in February, possibly prompting a Sterling boost.
Finalised PMI data will then be released from Britain and across the Eurozone. These releases are unlikely to inspire movement unless they vary from initial estimates.
Later in the session, the latest ISM services PMI from the USA will be published and is forecast to drop below last month’s reading. Given the strong negative correlation between the Euro and the US Dollar (USD), if the ‘Greenback’ consequently falls, the single currency may enjoy tailwinds.