Pound Euro (GBP/EUR) Exchange Rate Rangebound after ECB Comments

April 24, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound after ECB Comments

Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly amid Risk-Off Mood

The Pound Euro (GBP/EUR) exchange rate trended sideways on Monday. Comments from European Central Bank (ECB) officials weighed on the pairing as markets increased their expectations of further policy tightening.

The exchange rate also came under pressure from a retreat in global risk appetite.

On the other hand, persistent bets on additional Bank of England (BoE) interest rate hikes prevented any deeper losses for GBP/EUR.

At time of writing the GBP/EUR exchange rate was at around €1.1308, which was virtually unchanged from that morning’s opening figures.

Euro (EUR) Boosted by Hawkish ECB Comments

The Euro (EUR) climbed on Monday, finding support from a cautious market mood. Hawkish comments from ECB policymakers also bolstered the single currency.

Speaking to the Financial Times on Monday, ECB rate-setter Pierre Wunsch said:

‘We are waiting for wage growth and core inflation to go down, along with headline inflation, before we can arrive at the point where we can pause.’

Wunsch’s comments added to the recent pushback from multiple ECB policymakers against market bets of a policy tightening slowdown.

Additionally, EUR was lifted by an improvement in German business sentiment on Monday. April’s reading of the business climate index rose to 93.6 from 93.2 in March. Hopes that the German economy avoided a recession in the final quarter of 2022 were highlighted as a key factor in the index’s rise.

Pound (GBP) Ticks Lower as Markets Fully Price In 25bps BoE Hike

The Pound (GBP) edged lower on Monday. A retreat in global risk appetite dampened enthusiasm for Sterling. A lack of data for GBP left the currency vulnerable to market forces.

Sterling saw more drastic losses limited by persistent bets on a 25bps rate from the Bank of England (BoE) at their May meeting. Experts are anticipating that the central bank will keep rates paused over the rest of 2023.

James Smith, developed markets Economist at ING, had the following to say on the BoE’s forward path:

‘Recent wage and CPI data both came in above expectations and suggest another increase should be the base case for May. That said, policymakers have been explicit that much of the impact of past hikes is still to feed through, so we think the bar to further tightening beyond May remains high.’

GBP/EUR Exchange Rate Forecast: Will BoE Bets Bolster Pound?

Multiple data releases from the Confederation of British Industry (CBI) on Tuesday could have a mixed effect on the Pound. A forecast slight improvement in UK factory orders could see Sterling firm if the data prints as forecast.

On the other hand, an expected decline in second quarter business confidence could limit any gains for GBP.

Further data from the CBI on Wednesday could lend support to Sterling if it prints as expected. Distributive trades figures for April, a gauge of health in the retail sector, is set to rise to 9.

With no other data this week, the Pound could be affected by BoE rate hike bets. GBP may be pushed higher by market bets on a 25bps hike from the BoE at their next meeting.

Looking ahead for the Euro, consumer and business confidence figures on Wednesday and Thursday could provide a boost to the single currency. German consumer confidence for May and Eurozone business sentiment for April are both forecast to edge higher.

A raft of data for releases for EUR on Friday could inspire fluctuations in the Euro. German growth figures on Friday could see the Euro climb. The economy of the trading bloc’s largest member is expected to have expanded by 0.2% in the first quarter of 2023.

Growth data for the Eurozone could dent confidence in EUR, however. First quarter growth for trading bloc is expected to have cooled to 1.4%. Additionally, forecast cooler German inflation data could add to the Euro’s downturn.

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TAGS: Pound Euro Forecasts