Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Downbeat UK Headlines

January 26, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Downbeat UK Headlines

Pound Euro (GBP/EUR) Exchange Rate Narrows amid Thin Trading Conditions

The Pound Euro (GBP/EUR) exchange rate narrowed on Thursday morning, as thin trading conditions kept investors focused on headlines surrounding the UK and Eurozone.

At the time of writing, GBP/EUR traded at around €1.1373, showing minimal change from Thursday morning’s opening rates.

Pound (GBP) Struggles amid Downbeat Domestic Headlines

The Pound (GBP) struggled for support on Thursday morning, as the UK’s economic and domestic outlook continued to provide headwinds.

The Confederation of British Industry (CBI) published their distributive trades survey results for January on Thursday morning, which provides a glimpse into the UK retail. Predicted to show a decline from 5 to -11, the survey printed far below forecasts at -23. As such, it was shown that the UK’s retail sector had seriously suffered over December as UK households continued to feel the pinch from the recession and inflation.

Martin Sartorius, Principal Economist at CBI, commented on the survey, stating:
‘Retailers began the new year with a return to falling sales volumes, as the sector continues to face the twin headwinds of rising costs and squeezed household income. With consumer spending expected to fall throughout 2023, it’s important that the Government addresses the structural problems holding back retailers.’

The survey further predicted that UK retail will continue to struggle throughout 2023, without intervention from the UK government.

Furthermore, the former Chief Economist of the Bank of England (BoE), Andy Haldane, predicted in an interview with Radio 4 that further turbulence was ahead for the UK economy. Haldane suggested that the current lack of growth is directly linked to the current falls in real terms pay and inflation.

Euro (EUR) Wavers amid Growing Ukraine Russia Escalation Fears

The Euro (EUR) endured mixed trade on Thursday morning, as tension continues to mount between Ukraine and Russia.

The US and Germany agreed to supply Ukraine with heavy tanks to assist in combatting the Russian invasion, which has been called ‘direct involvement’ from the West by Russia.

Shortly after this was announced, Russian missiles rained down upon Kyiv. As such, fears of further escalations are abound as tensions continue to boil, prompting sentiment towards the single currency to wane.

Elsewhere, an upbeat market mood may be adding further headwinds to the Euro, due to it’s nature as a safer currency compared to the increasingly risk sensitive Pound.

However, underpinning the Euro and potentially cushioning it from further losses are consistent rate hike expectations from the European Central Bank (ECB). With ECB policymakers continually reiterating their desire to increase interest rates to control inflation, the prospect of higher rate hikes may be keeping some EUR investors on side.

Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB President Lagarde to Boost Euro?

Looking ahead for the Euro (EUR), the key driver of movement in the short term may come on Friday, as European Central Bank President Christine Lagarde is scheduled to deliver a speech.

With the ECB remaining consistently hawkish towards inflation, if President Lagarde reiterates the central bank’s commitment to driving down inflation the single currency may gain ground against its peers.

However, the persistent risk of fresh developments in the Ukraine-Russia conflict may keep a cap on the Euro’s gains. With Germany and the US recently agreeing to supply Ukraine with heavy tanks, further escalation may be on the cards. As the conflict continues to weigh on the Eurozone’s economy, further continuations may provide extra strain, and prompt headwinds for the Euro.

For the Pound (GBP), impactful data is thin on the ground as the week draws to a close. As such, domestic headlines could remain the key driver of movement for Sterling.

Any further developments in the continuing waves of industrial action across the UK could sap sentiment towards Sterling. However, if a breakthrough occurs in negotiations, the optimism could support GBP.

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TAGS: Pound Euro Forecasts