Pound euro (GBP/EUR) exchange rate ticks up amid surmounting ECB rate cut bets

Pound euro (GBP/EUR) exchange rate firms amid signs of easing German CPI

The pound euro (GBP/EUR) exchange rate is edging higher this morning amid cooling German inflation and a better-than-forecast UK manufacturing PMI.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1699, up approximately 0.2% from this morning’s opening rate.

Euro (EUR) slumps amid German inflationary easing

The euro (EUR) is facing headwinds this morning as numerous German states report easing inflation across the board.

Six German states, including Germany’s most densely populated state of North Rhine-Westphalia, recorded declining inflation in March’s annualised figures. The data points to a wider domestic decline in German CPI, ahead of the overall national inflation rate, due out this afternoon.

As markets ponder inflationary easing in the Eurozone’s largest economy, ramped up European Central Bank (ECB) interest rate cut bets serve to dampen investor interest in the common currency this morning, causing EUR to weaken against its major rivals.

Speculations of easing inflation today also appear to support the ECB’s dovish tilt, adopted in recent weeks. With an increasing number of ECB policymakers now shifting their attention towards interest rate cuts, markets are increasingly convinced that the rate-setters will loosen monetary policy in June. Signs of imminent unwinding may keep the euro on the defensive as today’s session progresses.

Pound (GBP) strengthens on upbeat PMI

The pound (GBP) is gaining ground this morning following an upward revision to the most recent UK purchasing managers index (PMI).

The S&P Global UK manufacturing PMI was revised higher to 50.3 in March’s finalised reading, surpassing expectations of 49.9 and rising from March’s 47.5.

Rob Dobson, Director at S&P Global Market Intelligence, cited an increased in new orders and production, fuelled by revived national demand as the driving force behind last month’s uptick I factory activity.

Dobson affirmed:

‘The end of the first quarter saw UK manufacturing recover from its recent doldrums.’

The data marked the first increase in factory production since July 2022, with the index printing in expansion territory following a prolonged period of negative growth.

This surprise uptick also signals a key turning point for the UK’s manufacturing sector, with renewed signs of economic optimism keeping the pound afloat this morning.

Pound euro exchange rate forecast: cooling German inflation to dent EUR?

Looking ahead, a data-heavy morning in the Eurozone could drive significant EUR volatility as today’s session progresses

Economists expect to see a dip in German inflation this afternoon, with forecasts that the annualized CPI will cool to 2.2% in March, down from 2.5%. Should the data print as forecast, ramped up ECB rate hike bets will likely sink the euro.

The Eurozone’s latest consumer inflation expectations are also due for release this afternoon. Could speculation of stubborn Eurozone inflation undermine recent ECB rate cut bets?

Due tomorrow is the Eurozone’s latest CPI. Signs of cooling inflation may once again fuel ECB rate cut bets, with any significant cooling perhaps guiding markets expectations towards an April rate cut.

Looking to the UK, a data-light week could see the increasingly risk-sensitive pound left vulnerable to risk sentiment.

Yasmine Arasteh

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