Pound euro (GBP/EUR) exchange rate wavers amid surmounting rate cut bets
The pound euro (GBP/EUR) exchange rate is trading without a clear direction this morning as ramped up interest rate cut speculations stymie any significant movement within the currency pairing.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1661, virtually unchanged from this morning’s opening rate.
Euro (EUR) mixed despite improving German business sentiment
The euro (EUR) is trapped in a narrow range this morning following dovish commentary from European Central Bank (ECB) policymaker Piero Cipollone.
Speaking at an event in Brussels, Cipollone stated that despite the Eurozone’s recent wage rebound the ECB may be able to lower interest rates promptly. The rate-setter’s notably dovish rhetoric appears to support market expectations that the central bank is set to begin its unwinding cycle in June, stifling EUR movement this morning.
Cipollone said:
‘Wage growth appears on track to gradually moderate in the medium term towards levels that are consistent with our inflation target and productivity growth, in line with the projections.
As our confidence in the timely convergence of inflation to our target grows, it also strengthens the case for adjusting our policy rates.’
Meanwhile, the Eurozone’s economic sentiment indicator for March printed as expected at 96.3. However, increased rate cut bets seem to offset the common currency’s upside potential.
Pound (GBP) wavers amid BoE rate cut expectations
The pound (GBP) continues to face headwinds this morning amid an ongoing UK data lull.
Amid a data-light session, ramped up Bank of England (BoE) interest rate cut speculations continue to weigh heavily on Sterling.
Top UK economists have expressed that the central bank should begin loosening its monetary policy sooner than markets anticipate, in alignment with rapidly cooling UK inflation.
With inflation due to fall below the BoE’s 2% target this year, policymakers face further pressure to begin slashing interest rates ahead of their next meeting.
Economists at consultancy firm Capital Economics say:
‘The UK is on the cusp of switching from having a bigger high inflation problem than other major economies to having a bigger low inflation problem.’
In addition to this, accounting giant KMPG are now pricing in four interest rate cuts for the remainder of the year, which is one more than the market consensus of three rate cuts. The global firm also claimed that the BoE must begin its unwinding cycle sharpish in order to avoid inflicting long term damage to the UK’s economy, leaving GBP rudderless this morning.
Pound euro exchange rate forecast: EUR to rebound under German retail sales?
Looking ahead, the latest German retail sales data is due for release tomorrow. Economists expect to see an increase of 0.3% in February. A forecast rebound in consumer activity through February could underpin recent signs of economic recovery for the Eurozone’s largest economy. This in turn could boost EUR sentiment, allowing the common currency to post some modest gains.
For the pound, the UK’s finalised GDP print is due out on Thursday. Markets forecast that the data will confirm that the economy contracted by 0.3% during the fourth quarter of 2023. Should the data align with previous readings, confirmation that the UK fell into a technical recession last year could see investors favour GBP’s stronger rivals.