GBP/EUR exchange rate stumbled amid concern over UK’s public finances
The pound euro (GBP/EUR) exchange rate is drifting lower this morning as markets brace for UK Chancellor Rachel Reeves to deliver an update on the state of the UK’s public finances.
At the time of writing, GBP/EUR is trading at around €1.1825, down roughly 0.2% from this morning’s opening levels.
Pound (GBP) stumbles on financial doubt
The pound (GBP) is facing headwinds against the majority of its peers this morning following reports of a £20bn gap in the UK’s public finances.
UK Chancellor Rachel Reeves is set to deliver a speech in the House of Commons to discuss the UK’s financial situation.
Reports suggest she will outline plans to cut public spending in order to plug a £20bn ‘black hole’, a move which is likely to weaken Sterling sentiment.
Paul Johnson, Director of the Institute for Fiscal Studies, told BBC Breakfast:
‘It is very striking that if this problem is about £20 billion big, that is exactly the scale of the national insurance cuts implemented by Jeremy Hunt just before the election. Now, if those cuts were implemented in the knowledge that there was this kind of hole, that is not good policy, to put it mildly.’
Additionally weighing on GBP exchange rates this morning are ongoing Bank of England (BoE) interest rate cut bets.
With the central bank’s decision looming, many economists continue to price in an August interest rate cut, further undermining Sterling sentiment.
Allan Monks of JPMorgan commented:
‘We look for a [quarter percentage point] rate cut [this] week, but in a very tight 5-4 vote. A cut would feel like it’s coming despite, rather than because of, data developments since May… The case for lower rates is far from clear.’
Euro (EUR) muted ahead of high impact data
The euro (EUR) is struggling to attract investor attention this morning as a data-light calendar leads to directionless trade in the common currency.
EUR movement is also limited as investors await the publication of the Eurozone’s preliminary GDP data for the second quarter of the year.
Scheduled for release tomorrow, the quarter-on-quarter figure is forecast to show a slight downturn in growth and could see the single currency falter against its rivals should the data print as expected.
Pound euro exchange rate forecast: data heavy calendar to infuse volatility?
Looking past Reeves’ speech today and the publication of the Eurozone’s GDP reading tomorrow, several high impact data releases could drive the pound euro exchange rate this week.
On Wednesday, the Eurozone’s preliminary inflation reading for July is forecast to show that both headline and core inflation are moving closer towards the European Central Bank’s (ECB) target, and could stymie the common currency in mid-week trade.
Turning to the Pound, GBP investors will shift their focus to the Bank of England’s interest rate decision on Thursday.
Will the recent slew of upbeat domestic data be enough to see the central bank keep rates unchanged? Or will they decide to cut rates this week and undermine Sterling in the process?