Pound Euro (GBP/EUR) exchange rate muted despite upbeat German releases

Pound Euro (GBP/EUR) exchange rate subdued as markets anticipate UK Spring Budget

The Pound Euro (GBP/EUR) exchange rate is rangebound this morning despite better-than-forecast German data, as markets await the UK’s hotly anticipated Spring Budget.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1700, virtually unchanged from this morning’s opening rate.

Euro (EUR) mixed as German exports surge

The Euro (EUR) is mostly quiet this morning as mixed trading conditions offset the common currency’s upside potential.

German exports rebounded in January, unexpectedly rising to 6.3% amid increased demand from within the Euro bloc and China. Following an improved German economic sentiment last month, renewed signs of life within the export-heavy economy initially boosted EUR sentiment during today’s session.

Thomas Gitzel, Chief Economist at VP Bank Group observed:

‘It is a good start to the year for exports. However, after the significant setback in December, a positive figure in January was very likely.’

Retail sales in the Eurozone also increased by 0.1% in January compared to the previous month, as anticipated. While markets had expected a 1.3% decline in January’s year-on-year figure, retail activity fell less than forecast by 1%, indicating that consumer spending is slowly recovering.

Today’s upbeat releases may serve to hush speculations of imminent European Central Bank (ECB) interest rate cuts as the session progresses, as economic conditions within the Eurozone seemingly improve.

However, a bout of cheery trade appears to be stifling the safe-haven Euro against the majority of its peers, ultimately muting the common currency this morning.

Pound (GBP) wobbles ahead of Spring Budget

The Pound (GBP) is subdued this morning prior to the unveiling of UK Chancellor Jeremy Hunt’s 2024 Spring Budget.

A lack of macroeconomic data today leaves investors reluctant to place any aggressive bets on Sterling, ahead of the latest government spending and tax plans. As the last notable piece of fiscal data due before this year’s General Election, the Budget may carry significant implications for the political and monetary trajectory of the UK this year.

Accordingly, markets are keen to see whether Hunt’s fiscal direction could induce boosted growth. Should the Treasury indeed deliver a series of ‘smart tax cuts’, seeking to jumpstart the UK economy following a period of dismal growth, the Pound may strengthen.

Economists observe that Bank of England (BoE) policymakers could opt to keep interest rates near its sixteen-year high, in order to offset any significant tax reductions, thereby boosting GBP later on.

Kallum Pickering, Senior Economist at Berenberg bank commented:

‘If the Bank of England judges that tax cuts add to inflationary pressures, policymakers may be inclined to cut rates by less this year – de facto neutralising the impact of tax cuts.’

Pound Euro exchange rate forecast: markets eye Hunt’s Spring Budget

This afternoon Hunt’s 2024 Spring Budget is in focus, likely to be the main driving force behind Sterling exchange rates. An underwhelming plan could deter investors, leaving GBP to face headwinds for the latter part of today’s session. However, plans growth-boosting measures may bolster the Pound.

Looking to the Eurozone, markets anticipate the European Central Bank’s (ECB) interest rate decision and accompanying press conference, due tomorrow afternoon. While the central bank is widely expected to keep interest rates on hold at 4.5% this month, any accompanying guidance from ECB policymakers will likely be the core impetus of EUR movement.

Should rate-setters signal a dovish hold then the common currency may falter as markets ready themselves for potentially hasty monetary loosening in April. Alternatively, further hawkish rhetoric from ECB officials could see the Euro garner investor interest amid speculation that rates may remain ‘higher for longer’.

In the meantime, the Pound Euro exchange rate may fluctuate amid a shifting market mood. An extension of this morning’s upbeat trading conditions could keep the increasingly risk-sensitive Pound afloat ahead of impactful economic updates.

Yasmine Arasteh

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