Pound euro (GBP/EUR) exchange rate firms amid anxious market mood
The pound euro (GBP/EUR) exchange rate is edging higher this morning, and has reached an almost two year high, despite the absence of any market moving data.
At the time of writing, GBP/EUR is trading at around €1.1897, up roughly 0.2% from this morning’s opening levels.
Euro (EUR) dented amid political uncertainty
The euro (EUR) is struggling to garner investor attention this morning, and is faltering against the majority of its peers, despite a surge in cautious trading conditions.
The fallout from the European elections have weighed heavily on the euro this week, after gains made by far-right Eurosceptic parties.
EUR investors were particularly spooked by French President Emmanual Macron’s shock decision to call for a snap election following his party’s defeat in last weekend’s elections.
Macron is hoping he can rally support from across the political spectrum and rebuff the National Rally party.
However, EUR investors fear Macron’s decision could backfire and lead to political deadlock in the Eurozone’s second largest economy, scuppering Macron’s chances of pushing through much needed economic reforms.
Pound (GBP) underpinned by dampened rate cut bets
The pound (GBP) is holding steady against the majority of its peers this morning despite the absence of any UK economic data.
Lending Sterling some modest support this morning are deferred Bank of England (BoE) interest rate cut bets.
Markets are now just pricing in just a single BoE interest rate this year, this has served to keep GBP afloat this morning despite otherwise thin trading conditions.
Yael Selfin, Chief UK economist at KPMG, explains:
‘While we are seeing some tentative signs of cooling in the labour market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut.’
Pound euro exchange rate forecast: UK inflation in the spotlight
Looking ahead to the first half of next week’s session a key catalyst of movement in the pound euro exchange rate will be the publication of the UK’s latest consumer price index.
The CPI data is expected to report that UK inflation continued to cool in May, perhaps even falling below the BoE’s 2% target. This could weigh heavily on Sterling as it could revive BoE rate cut bets.
Meanwhile Tuesday will see the publication of Germany’s latest ZEW economic sentiment index. June’s reading is expected to confirm a slight uptick in sentiment, which could also buoy EUR exchange rates.
Tuesday will also see the release of the Eurozone’s finalised CPI reading for May. This is likely to confirm that both headline and core inflation accelerated, which could lend the single currency some modest support should the data match expectations.