Pound Euro (GBP/EUR) Exchange Rate Falls amid Souring Market Mood

April 25, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Falls amid Souring Market Mood

Pound Euro (GBP/EUR) Exchange Rate Falls amid Souring Market Mood

The Pound Euro (GBP/EUR) exchange rate weakened during Tuesday’s European session, as a risk averse market mood elevated the Euro above Sterling.

However, due to strength in the US Dollar, the single currency was unable to gain ground against most other peers.

At the time of writing, GBP/EUR traded at around €1.1276, a fall of roughly 0.3% from Tuesday’s opening rates.

Pound (GBP) Weakens amid Bearish Trading Conditions

The Pound (GBP) weakened during Tuesday’s European session, as a sour market mood prevented the increasingly risk sensitive currency from gaining ground.

This may have been further enforced by a series of mixed data releases during the session. Firstly, UK government borrowing figures were released, showing that the public sector had borrowed £21.5bn in March, an increase of £16.3bn over the previous month.

However, over the course of the year the government had borrowed £13.2bn less than forecast by economists. Because of this, analysts began to believe that Chancellor Jeremy Hunt may have more room for growth boosting measures, such as tax cuts.

Furthermore, business optimism was seen to make something of a recovery for the second quarter. The Confederation of British Industry’s latest index saw the data climb to the highest level since Q4 2021. This may have added some cushioning and prevented Sterling from making substantial losses.

Euro (EUR) Undermined by USD Strength

The Euro saw mixed trade during Tuesday’s session. While a souring market mood allowed the common currency to gain ground against the Pound, strength in the US Dollar prevented the common currency from posting gains against other currencies.

This is likely due to the negative correlation the two currencies share. Oftentimes, when the ‘Greenback’ climbs, the Euro struggles for support.

However, the Euro may have been underpinned by persistently hawkish comments from European Central Bank (ECB) members.

Phillip Lane, ECB Chief Economist, stated in an interview with Le Monde: ‘For our next Governing Council meeting on 4 May, the current data are indicating that we should raise rates again. This is still not the right time to stop. Beyond that, I don’t have a crystal ball; it will depend on the economic data. But the analysis suggests that it would be inappropriate to leave our deposit rate at the current level of 3%.’

Lane’s comments could have brought a modest tailwind for the single currency, allowing it to climb further against more risk sensitive assets such as the Pound.

Further weighing on the Euro during the session may have been a lack of significant data releases. Because of this, the single currency may have been unable to find a clear direction of movement, contributing to the mixed trade.

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

Looking ahead for the Pound (GBP), Wednesday brings the publication of the Confederation of British Industry’s (CBI) latest distributive trades, reflecting the health of the UK retail sector over April.

A fall is currently forecast by economists for the index to dip down to 0 from 1. If this prints accurately, it could weigh on the Pound by pointing to weakness in the UK’s retail sector. However, if it surprises to the upside it may cheer GBP investors.

For the Euro (EUR), the GfK consumer confidence for Germany is due to publish. This index will reflect consumer attitudes and expectations for May. A decrease in pessimism is forecast, which could bring a minor tailwind to the Euro.

On Thursday, the Eurozone’s economic sentiment index is due to print. Economists forecast this release to show an uptick in optimism over April, which could bring support to the common currency.

Elsewhere, market sentiment is likely to play a role in shaping the pairing. As the Pound holds an increasingly risk sensitive nature, an upbeat market mood may elevate Sterling over the Euro.

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