Pound Euro Exchange Rate News: GBP/EUR Edges Slightly Higher Ahead of ECB Accounts Release

May 19, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Edges Slightly Higher Ahead of ECB Accounts Release

GBP/EUR Edges Higher as EUR Investors Look Towards ECB Accounts

The Pound Euro (GBP/EUR) exchange rate is edging higher at the opening of today’s European session as EUR investors await the European Central Bank’s (ECB) May monetary policy accounts. However, GBP/EUR upside remains limited following the UK’s latest consumer price index, released yesterday.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.18.

Euro (EUR) Subdued as EUR Investors Await ECB Monetary Policy Accounts

The Euro (EUR) is slipping against the majority of its peers this morning as EUR investors await the ECB’s May monetary policy accounts.

The accounts will outline major discussion points of the bank’s latest meeting, as well as the tone struck by policymakers.

In recent weeks, policymakers at the ECB have taken on a far more hawkish tone. Some members of the Governing Council have been openly voicing their support for rate hikes as early as July. Even ECB President Christine Lagarde, who is relatively dovish and often careful with her communication, has hinted that the bank is close to raising rates.

Against this backdrop, investors are eager to gauge the tone of the debate at the ECB’s last meeting.

As the meeting accounts have the potential to cause significant movement in the single currency, investors may be hesitant to place bets this morning, preferring to wait on the side-lines ahead of the release. This could be leaving EUR open to losses.

Pound (GBP) Trades Higher on Weakened Euro

The Pound (GBP) is trending slightly higher against the weakened Euro, though continues to struggle against some of its stronger rivals.

This comes following yesterday’s release of the UK’s latest CPI reading.

In April, inflation soared to a 40-year high, jumping from 7% to 9%. Although this was marginally below market forecasts of 9.1%, it is significantly above the Bank of England’s (BoE) target rate of 2%.

Driven by Russia’s invasion of Ukraine and the new energy price cap, experts believe rising energy prices are largely responsible for surging inflation, which is exacerbating the UK’s cost-of-living crisis.

As a result, some experts have cautioned that the UK may enter a recession in the third quarter of this year, unnerving GBP investors.

In turn, experts and the British public alike are looking towards the government for economic support.

Although UK Chancellor of the Exchequer, Rishi Sunak, maintains the government is ‘ready to take further action’, the specifics have not yet been outlined.

Thus, GBP exchange rates are likely to remain low for the time being.

GBP/EUR Exchange Rate Forecast: Will UK Retail Sales Highlight Cost-of-Living Crisis?

Looking ahead, the Pound Euro exchange rate may be pressured by the latest UK retail sales.

In April, sales are predicted to suffer a 0.2% contraction. If market forecasts are correct, this could reveal a slowdown in consumer spending as the cost-of-living crisis continues to hurt the UK economy. In turn, this is likely to weigh on Sterling’s appeal.

The Pound may also be influenced by a speech from BoE policymaker Huw Pill. Should Pill strike a dovish tone, echoing the current position of the central bank, it may dampen BoE interest rate hike bets and hinder GBP exchange rates.

Meanwhile, the Euro may be weighed on by the Eurozone’s flash consumer confidence for May. Confidence is expected to remain low at -21.5, stoking recession fears across the bloc.

In addition, the GBP/EUR exchange rate may be impacted by Brexit developments. Recently, the UK government has threatened to make unilateral amendments to the Northern Ireland protocol. If these actions are carried out, it could trigger an EU-UK trade war.

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TAGS: Pound Euro Forecasts