Pound euro (GBP/EUR) subdued despite upbeat German business sentiment

Pound euro (GBP/EUR) holds steady following mixed CBI data.

(Updated 15:55, 24/04/24) The pound euro (GBP/EUR) exchange rate continued to trade sideways throughout the remainder of the session as the Confederation of British Industry’s (CBI) latest surveys signalled an unclear outlook for the UK economy.

The data indicated improving optimism and declining orders in the UK, with industrial trends orders unexpectedly dropping by 5 points to -23 in April, rather than edging higher to -16. Meanwhile, the CBI recorded business confidence to be at a six-month high, surprising to the upside with a reading of 9 in the second quarter.

However, Anna Leach, Deputy Chief Economist at the CBI, was ultimately optimistic about the data, stating:

‘Conditions facing manufacturers have taken a turn for the better, with sentiment improving and expectations for future output growth their strongest in six months. A softer labour market has eased concerns that skills and labour could constrain output and orders. Concerns about access to materials and components are also at their lowest since January 2020. These brighter conditions are supporting a more stable picture for investment over the year ahead.’

After wavering against the euro (EUR) this morning, the pound (GBP) remained largely unmoved as investors surmised the conflicting reports. In addition to this, a series of speeches from European Central Bank (ECB) policymakers had little affect on EUR exchange rates, as policymakers largely maintained their recent preference for June interest rate cuts.

At the time of writing, GBP/EUR is trading at €1.1635, up from an earlier €1.1628 and virtually unchanged from its opening levels.

The focus moving forward is Germany’s GfK consumer confidence survey for May. Set to edge slightly higher to -25.9, another deeply negative reading could hamper the euro.

Furthermore, the ECB’s latest Economic Bulletin is due for release. Could signs of prolonged economic weakness further deter investor interest in the common currency?

Original article continues below:

Pound euro (GBP/EUR) exchange rate rangebound amid German Ifo data

The pound euro (GBP/EUR) exchange rate is trading without a clear direction this morning as market volatility outweighs upbeat releases from the Eurozone.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1628, virtually unchanged from this morning’s opening rate.

Euro (EUR) wavers despite improving business sentiment

The euro (EUR) is facing headwinds this morning as an increasing appetite for risk saps appeal for the safe-haven currency.

As such, markets appear largely unmoved by Germany’s latest Ifo business climate index, which rose more than economists had anticipated in April.

The generally high-impact index printed at 89.4 in April, jumping from the previous month’s 87.8, and surpassing forecasts of 88.9, as sentiment towards the Eurozone’s largest economy reached an eleven-month high.

Economists attributed the upbeat reading to increased company satisfaction and brightening expectations in April, while increased momentum in the German services sector further lifted economic sentiment.

Ifo President Clemens Fuest observed:

‘The economy is stabilizing, especially thanks to service providers.’

Elsewhere, a strengthening US dollar (USD) may be capping EUR’s upside potential, due to the currency pairing’s negative correlation.

Pound (GBP) buoyed by hawkish BoE comments

The pound (GBP) is subdued this morning amid a lack of macroeconomic releases so far.

With data in short supply, investors may recall the latest Bank of England (BoE) commentary. Speaking in London yesterday, BoE Chief Economist Huw Pill struck a decisively more hawkish tone than anticipated, diverging from the increasingly dovish rhetoric adopted by his peers in recent days.

The heavy-weight economist noted that recent upbeat UK data points to a strengthening domestic economy, which in turn signals potential inflationary rebounds. In contrast, other senior BoE policymakers expressed confidence only last week that inflation is rapidly approaching the central bank’s 2% target rate.

Pill said:

‘We still have a reasonable way to go before I am convinced that the persistent momentum in underlying inflation has stabilised at rates consistent with achievement of the 2% inflation target on a sustainable basis.’

Pound euro exchange rate forecast: ECB speeches to drive volatility?

Looking ahead, a series of speeches from Eurozone policymakers could drive EUR movement amid a data-light afternoon.

Both Isabel Schnabel and Elizabeth McCaul are due to speak later today, following commentary from Piero Cipollone and Anneli Tuominen this morning.

Investors will likely be on the lookout for any dovish signals from the various policymakers, as ramped up rate cut bets continue to undermine EUR exchange rates.

Should the influx of commentary indicate a dovish consensus amongst ECB officials, the common currency may falter as the session nears an end.

For the pound, a lack of high impact releases may pull the latest Confederation of British Industry’s (CBI) industrial trends orders into focus. Forecast to hit -16 in April, a fourth consecutive increase may indicate improving conditions in the manufacturing sector. However, should the data confirm a deeply negative reading, GBP will likely falter.

Yasmine Arasteh

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