Pound Euro (GBP/EUR) Exchange Rate Edges Higher as Euro Succumbs to USD Strengthen

April 27, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Edges Higher as Euro Succumbs to USD Strengthen

Pound Euro (GBP/EUR) Exchange Rate Edges Higher as Euro Succumbs to USD Strengthen

The Pound Euro (GBP/EUR) exchange rate firmed during Thursday’s trade, as the Euro was undercut by its negative correlation to the US Dollar.

At the time of writing, GBP/EUR traded at around €1.1314, an increase of around 0.2% from Thursday’s morning rates.

Euro (EUR) Weakens as US Dollar Climbs

The Euro (EUR) broadly weakened during Thursday’s session, as a strong showing from the US Dollar undermined the single currency.

The common currency’s negative correlation to the US Dollar may have played a role in diminishing sentiment towards it. While the US GDP data printed far below forecasts, reports indicated that consumer spending was improved.

Furthermore, additional reports indicated signs of inflationary pressures. Because of this, investors bet on further tightening from the Federal Reserve, despite the sharp economic cooldown, as they aim to curtail inflation.

With the US Dollar rallying, EUR was unable to gain much ground. Furthermore, Thursday morning saw the publication of the latest Eurozone economic sentiment index. While it ticked upward, it printed at 99.3 – far below the forecast of 99.9.

This likely led to pared back bets on further tightening from the European Central Bank (ECB). Peter Vanden Houte, ING’s Chief Economist for the Eurozone, commented: ‘While selling price expectations in services remain high, they also fell for the third month in a row. That seems to point to some easing in underlying inflation in the months ahead.’

With this in mind, economists began to shift expectations slightly towards favouring a 25bps hike at the ECB’s next meeting in May, which may have weighed on the Euro during Thursday’s session.

Pound (GBP) Mixed amid Lack of Impactful Data

The Pound (GBP) weakened against most peers on Thursday, as a lack of economic data releases left Sterling vulnerable to domestic and external factors. However, due to significant weakness in the Euro, GBP was able to gain ground.

Fresh industrial action was announced by the train driver’s union Aslef, which could have weighed on the Pound. With the previous winter of strike action impacting the UK economy, further action could bring some anxieties to GBP investors.

However, continued expectations of an interest rate hike in May from the Bank of England (BoE) are likely preventing Sterling from bottoming out against all its peers. Economists have also begun to entertain the possibility of tightening beyond the May meeting, as inflationary pressures persist in the UK economy.

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

Looking ahead for the Euro (EUR), two key sets of data releases are scheduled to print on Friday, which are likely to provide some movement for the single currency.

Firstly, the latest GDP data for the Eurozone is expected to print during Friday morning. Economic growth is forecast to have slowed from 1.8% to 1.4% during the first quarter. Because of this, the Euro could weaken as it may point to signs that the European Central Bank’s tightening cycle is beginning to take effect on the economy.

However, the common currency may see a recovery on the back of the latest German inflation data. This is scheduled to print on Friday afternoon, and is forecast to show that inflation will have cooled from 7.4% to 7.3% in April.

If this prints as expected, it may show that inflation remains sticky. This could prompt increased rate hike bets, as it implies that the ECB needs to do more to control inflation in the bloc. In turn, this may strengthen the Euro.

Meanwhile, the Pound (GBP) may struggle to attain much in the way of support through to the close of the week. A scant data calendar may leave Sterling vulnerable to external factors and market dynamics.

As an increasingly risk sensitive currency, a shift to upbeat trade could bring tailwinds for Sterling. However, if the mood remains tepid or sours, the Pound may weaken.

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TAGS: Pound Euro Forecasts