Pound Euro Exchange Rate News: GBP/EUR Wavered amid Stronger-than-Expected German Inflation

March 30, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavered amid Stronger-than-Expected German Inflation

Euro (EUR) Supported by Elevated Rate Hike Expectations

The Euro (EUR) traded in mixed directions on Thursday amid a flurry of mixed data. Spanish inflation almost halved, combined with downbeat economic sentiment dragged the Euro lower. However, hotter-than-expected German inflation lifted the single currency once more.

The latest headline CPI reading for Europe’s largest economy came in above expectations and printed at 7.4% YoY, above predictions of a 7.3%. Despite a significant drop from 8.7%, the CPI remains far above the European Central Bank (ECB) target rate of 2%.

Elsewhere, the latest economic sentiment index was released early Thursday, and a second consecutive month of sliding optimism dented the Euro. Against expectations of a modest rise, optimism fell to 99.3 from 99.7. Fears of a banking crisis and prolonged high interest rates soured moods and weighed on the bloc.

Providing some modest support for the Euro are continued hawkish comments from ECB policymaker Isabel Schnabel. Speaking at a conference late Wednesday, Schnabel warns that inflation remains ‘sticky’ and the recent drop in energy prices might not pull price pressures down as much as the markets are hoping. She added:

‘ECB has some flexibility in reaching its 2% target and did not want to create needless pain by acting too quickly.

‘Our target is defined over the medium term, and so of course, we do not want to cause unnecessary pain.’

Pound (GBP) Undermined Economic Growth Fears

The Pound (GBP) came under pressure on Thursday amid a lack of economic data. Despite a surprise uptick in business confidence, the medium-term economic outlook remains shaky, weighing on Sterling.

The Confederation of Business Industry (CBI) released its monthly business survey and found the vast majority of private businesses have an optimistic view of the next three months. The findings were the first positive expectations of growth in over a year since April 2022.

Despite the renewed optimism in the UK economy, the underlying concerns of stagnation still weigh heavy. Alpesh Paleja, CBI Lead Economist, warns that the UK still has a way to go before it’s on a solid path for growth:

‘It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.

‘While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.’

GBP/EUR Exchange Rate Forecast: Slipping Eurozone Inflation to Dent the Euro?

Looking ahead, the Pound Euro exchange rate could see further movement with the latest headline CPI reading from the Euro area. With inflation expected to ease to 7.1%, the ECB could consider a pause in the tightening cycle. However, if the reading comes in hotter-than-expected, the Euro could climb on rate hike bets.

Meanwhile, the Pound could see mild movement if final GDP growth data differs from preliminary figures. Any lower and the figure would drop into contraction territory, which could drag Sterling lower.

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TAGS: Pound Euro Forecasts