Pound euro (GBP/EUR) exchange rate rises amid downbeat trade

Pound euro (GBP/EUR) exchange rate rises amid downbeat trade

Article updated 16:12, 22/5/2024:

The pound euro (GBP/EUR) exchange rate is rising higher this afternoon, amid a downbeat market mood.

While the pound (GBP) is an increasingly risk-sensitive asset, the earlier inflation news is keeping it afloat.

Additionally, the bearish impulse is favouring the US dollar (USD) over the euro (EUR), which is leading it to weaken. The pairing shares a negative correlation, which is weighing heavily on the common currency.

As the downbeat trade is likely caused by caution ahead of the latest FOMC meeting minutes,

At the time of writing, GBP/EUR is trading at around €11.1745, an increase of roughly 0.3% from today’s opening rates.

Original article continues below:

Pound euro (GBP/EUR) exchange rate ticks higher amid hot UK inflation

The pound euro (GBP/EUR) exchange rate is firming this morning, as UK inflation prints above expectations.

At the time of writing, GBP/EUR is trading at around €1.1734, an increase of roughly 0.2% from today’s opening rates.

Pound (GBP) firms amid hotter-than-expected inflation

The pound (GBP) is on the march this morning, following hotter-than-expected inflation data for April.

While both headline and core inflation rates cooled, they both printed above expectations. The headline rate decelerated to 2.3% from 3.2%, above expectations of a 2.1% reading.

This is prompting investors to adjust their bets on interest rate cuts from the Bank of England (BoE).

Just yesterday, markets were eyeing a June beginning to the BoE’s cutting cycle, which is now cast into doubt. The chances of a rate cut next month now stand at roughly 15%, with August also seeming unlikely.

James Smith, Developed Markets Economist at ING, commented:

‘The figures therefore aren’t a total game-changer for the Bank of England which will look at the numbers and see more noise than signal. But we think it does reduce the chances of a rate cut at June’s meeting, even though we’ll get another set of data before that decision.’

Due to the implication that the BoE may need to keep interest rates unchanged for longer, Sterling is enjoying support.

However, as the BoE is still expected to cut rates by September, GBP’s gains may be being capped.

Euro (EUR) wavers amid lack of data

The euro (EUR) is struggling to attract support this morning due to a lack of impactful data releases.

This is leaving the common currency exposed to market dynamics and risk appetite. Owing to a spell of mixed trade, the safer euro is able to remain afloat against its peers.

However, this same wavering trading impulse is likely restricting its movement against riskier peers.

Elsewhere, continued analysis of the European Central Bank’s (ECB) next steps is likely affecting EUR.

The ECB is expected to be the first of the primary three central banks to cut interest rates. This divergence versus the BoE could be further undermining the euro against the pound this morning.

Pound euro exchange rate forecast: UK PMIs in focus

Looking ahead for the pound, tomorrow brings the release of the latest preliminary PMI reports.

In May, the UK’s manufacturing sector is forecast to have seen improved activity, whereas the service sector is expected to have slowed.

This could prompt mixed trade in the pound, as the economic picture may be unclear. However, if the services reading surprises to the upside, GBP could strengthen.

This is followed on Friday by the latest UK retail sales data, reflecting spending in April. Markets anticipate sales to have fallen by 0.4% on a monthly basis, which could weaken GBP exchange rates.

For the euro, the latest preliminary PMIs are also due for publication tomorrow.

Both Eurozone services and manufacturing sectors are expected to show improved activity, which could strengthen the common currency.

John Mulcahey

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