Pound euro (GBP/EUR) exchange rate remains low despite upbeat trade
Article updated 16:35, 31/5/2024
The pound euro (GBP/EUR) exchange rate is softening this afternoon, despite an upbeat market mood.
Normally, the increasingly risk sensitive pound (GBP) would be able to rise against its peers as investors seek out risk-intensive assets.
However, the euro (EUR) is managing to stay afloat due to a weakening US dollar. As this pairing shares a negative correlation, cooler-than-expected US core inflation is serving to strengthen the euro despite its safer stature.
At the time of writing, GBP/EUR is trading at around €1.1734, a fall of roughly 0.2% from today’s opening levels.
Original article continues below:
Pound euro (GBP/EUR) exchange rate dips as EU inflation heats up
The pound euro (GBP/EUR) exchange rate is weakening this morning, following hotter-than-expected Eurozone inflation data.
At the time of writing, GBP/EUR is trading at around €1.1731, a fall of roughly 0.2% from the morning’s opening rates.
Euro (EUR) rises as inflation accelerates
The euro (EUR) is on the march this morning, following hotter-than-expected inflation data for May.
Headline inflation rose for the first time in five months, accelerating to 2.6%, up from April’s 2.4% reading. This showed an increase above the expected 2.5% print, and was joined by an increase in core inflation, which rose to 2.9%.
This is strengthening the euro by indicating that inflation is more persistent than initially expected. This could prompt the European Central Bank (ECB) to adjust its cycle of interest rate cuts.
As inflation is above expectations, it may push the ECB to cut interest rates a single time, as this would likely keep policy restrictive.
ECB Policymaker Fabio Panetta commented:
‘Monetary policy would remain restrictive even after several rate cuts. Monetary easing can be expected over the coming months if data confirms our forecasts. Must avoid policy becoming too restrictive.’
With this in mind, the latest inflation data could be indicative that the ECB will only cut rates once for now, strengthening EUR.
Pound (GBP) ticks lower amid continued absence of data
The pound (GBP) is continuing its streak of minimal data this morning, prompting it to lose out against stronger currencies.
As the lack of data is leaving it exposed to a cautiously cheery market mood, GBP is weakening against riskier assets.
Additionally, pessimism surrounding the UK’s economic outlook is restricting Sterling this morning. The cost-of-living crisis continues to bite down on UK households, with anaemic growth further undermining the economy.
Mubin Haq, Chief Executive of abrdn Financial Fairness Trust, commented:
‘On a range of measures UK performance has been weak, especially in comparison to other wealthy countries. The danger is that stagnation becomes the new normal.’
However, the mixed market mood is allowing GBP to remain afloat against safer assets, such as the euro.
Pound euro exchange rate forecast: Return to manufacturing growth to lift pound?
Looking ahead for the pound, a continued lack of impactful data may push focus onto the final manufacturing PMI reading.
If this confirms that the UK manufacturing sector returned to growth in May, Sterling could see some support on Monday. However, as it is the final reading, if there isn’t a significant deviation either way its impact may be minimal.
This is followed by the latest British Retail Consortium (BRC) retail sales monitor for May. Forecast to show a 2.8% increase in sales, this could lift GBP on Tuesday.
For the Euro, the core catalyst of movement is likely to be the latest German unemployment rate.
In May, unemployment is forecast to have held at 5.9%. This could strengthen the common currency by indicating a strong labour market in the Eurozone’s largest economy.