Pound Euro Exchange Rate: GBP Stumbles vs EUR amid GBP Profit Taking

April 14, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate: GBP Stumbles vs EUR amid GBP Profit Taking

Pound Euro (GBP/EUR) Exchange Rate Stumbles amid GBP Profit Taking

The Pound Euro (GBP/EUR) exchange rate weakened on Friday, as a lack of economic data prompted profit taking against Sterling.

At the time of writing, GBP/EUR traded at around €1.1309, a fall of roughly 0.2% from Friday’s opening rates.

Pound (GBP) Edges Lower amid Lack of Economic Data

The Pound (GBP) saw a lack of support during Friday’s European session, as a lack of impactful data releases kept sentiment towards Sterling lowered.

Because of this, the Pound largely traded in relation to dynamics with other currencies, as investors sought other investment opportunities across the markets. Furthermore, profit taking likely kept Sterling low as investors looked to make gains off the back of GBP’s strength on Thursday.

However, persistent expectations of a final 25bps interest rate hike in May may have cushioned Sterling from further losses. The expectation is carrying over from Thursday, following a speech from Bank of England (BoE) Chief Economist Huw Pill. Pill noted that a ‘positive shock demand’ may be supporting consumption in the UK economy.

Because of this, economists are expecting a final rate hike in May. Chris Turner, Global Head of Markets at ING, stated: ‘That suggests Pill may not be shifting into ‘pause’ mode when it comes to monetary policy. Here financial markets now price an 80% chance of a 25bp BoE hike on 11 May.’

Euro (EUR) Underpinned by Elevated ECB Rate Hike Bets

The Euro (EUR) was underpinned during Friday’s session in large part by market expectations of further interest rate hikes from the European Central Bank (ECB), as well as its negative correlation with the US Dollar.

ECB Governing Council member Joachim Nagel delivered a speech at this week’s IMF event in Washington, and indicated a need for the bank to continue on its current path of interest rate hikes in order to curtail inflation and restore price stability. Because of this, EUR investors appeared to continue anticipating a further interest rate hike at the ECB’s next meeting in May, but the size remains unclear for now.

Nagel stated: ‘What is clear is that monetary policy must continue to act decisively to restore price stability in a timely manner.’

However, he also stated that core inflation could begin to cool as we approach the summer. Because of this, EUR’s gains on his hawkish sentiments could have been capped by signals that the ECB’s tightening cycle may end soon.

Elsewhere, the US Dollar is facing heavy selling pressure amid persistent signs of cooling inflation, which is leading to USD investors to pare back their bets on further tightening from the Federal Reserve. Because of this, the Euro likely garnered extra support as the pairing shares a negative correlation which generally sees the common currency strengthen when the ‘Greenback’ weakens.

Pound Euro (GBP/EUR) Exchange Rate Forecast: UK Labour Data in Focus

Looking ahead to early next week for the Pound (GBP), Tuesday sees the release of the latest unemployment rate and wage growth data for February.

The unemployment rate is currently forecast to tick upwards to 3.8%, which may weaken Sterling. If this does increase inline with economists’ expectations, it could point to signs of weakness in the UK jobs market, which would likely lead to reduced interest rate hike bets.

Furthermore, wage growth is forecast to dip to 6.3%. Similar to the unemployment rate, if this falls as forecast it would add further pressure to the Bank of England to pause tightening, as it would indicate that pay rises are slowing in response to cooling inflation. Because of this, Sterling may weaken as GBP investors diminish their bets.

For the Euro (EUR), Tuesday brings the latest ZEW economic sentiment index for Germany, reflecting attitudes for April’s activity.

This is currently expected by economists to increase from 13 to 15, which would reflect growing optimism around the bloc’s largest economy in terms of economic activity. As such, this would likely bring support to the Euro as the German economy shows signs of life after early year struggles.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts