Pound Euro (GBP/EUR) Exchange Rate Ticks Lower as UK Strike Action Set to Continue

January 16, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Ticks Lower as UK Strike Action Set to Continue

Pound Euro (GBP/EUR) Exchange Rate Slips as UK Outlook Darkens

The Pound Euro (GBP/EUR) exchange rate ticked lower on Monday. The pairing came under pressure from a poor outlook for the UK. Additionally, GBP/EUR saw losses from bets on hawkish action from the European Central Bank (ECB).

At time of writing the GBP/EUR exchange rate was at around €1.1271, which was down roughly 0.2% from that morning’s opening figures.

Pound (GBP) Ticks Lower amid Gloomy UK Outlook

The Pound (GBP) edged lower on Monday. A mixed market mood kept gains for GBP limited, as well as the generally poor outlook for the UK economy.

The prospect of further industrial action in the UK weighed on the Pound. The National Education Union (NEU) indicated that they would be announcing strike action this week.

Mixed bets on further action from the Bank of England (BoE) also kept the Pound on the defensive. A pullback in bets on more aggressive action from the BoE dented confidence in Sterling on Monday.

On the other hand, sharp losses were limited by evidence of price pressures that may force further policy tightening from the central bank. Speaking on Monday, Equinor chief executive Anders Opedal warned that gas and electricity prices were unlikely to return to levels seen before Russia’s invasion of Ukraine.

Euro (EUR) Gains as ECB Continues Hawkish Pivot

The Euro firmed against several of its peers on Monday. A mixed market mood lent support to EUR, as well as a reduced demand for the US Dollar (USD). An uptick in Eurozone bond yields also bolstered the Euro.

EUR saw further gains off the back of market bets on an aggressive pace of policy tightening from the ECB. Hawkish comments from ECB policymaker Olli Rehn on Monday prompted further bets.

Speaking in a column, Rehn said:

‘Policy rates will still have to rise significantly to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.’

On the other hand, views from economists that the ECB may slow their pace of policy tightening by June limited the Euro’s upward movements. A poll of economists conducted by Bloomberg found the majority forecasting a sharp drop in inflation, prompting a rate pullback from the ECB.

GBP/EUR Exchange Rate Forecast: Will UK Inflation Slip Prompt BoE Rate Hike Pullback and Dent Pound?

Looking to the week ahead for the Pound, November’s employment data could boost GBP if it prints as forecast. Unemployment and wage growth for November are both expected to remain unchanged from their previous readings. Signs of a tight labour market could also lead to increased bets on further interest rate hikes from the BoE.

On the other hand, a predicted slip in December’s inflation on Wednesday could prompt a pullback in BoE rate hike bets. Amid evidence of easing global price pressures, the data could also see the Pound slip if the data prints as expected.

A forecast recovery in December’s retail sales could help to cushion any losses for GBP, however. Following upbeat profit reports from major UK retailers, the sector is expected to have seen a rebound over the festive period.

Finally for the Pound, ongoing industrial action could keep pressure on Sterling in the coming week.

For the Euro, an expected slip in Germany’s December inflation could weigh on EUR. The data could see markets pare back bets on further rate hikes from the ECB. A predicted negative reading in the country’s economic sentiment index could also keep pressure on the Euro.

Wednesday’s final reading of Eurozone inflation could also see reduced ECB rate hike bets. December’s inflation is forecast to slip to 9.1%, and could pull EUR lower alongside it.

Speeches from ECB President Christine Lagarde will be closely watched by markets on Thursday and Friday. If Lagarde confirms further hawkish action from the central bank then it could boost the Euro.

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