Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed German Industrial Data

June 7, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed German Industrial Data

Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed German Industrial Data

The Pound Euro (GBP/EUR) exchange rate fluctuated on Wednesday, as a mixed set of German industrial data prevented the common currency from gaining firm ground.

At the time of writing, GBP/EUR traded at around €1.1626, showing little clear movement from Wednesday’s opening rates.

Euro (EUR) Capped by Mixed German Data

The Euro (EUR) saw potential gains capped on Wednesday by a mixed set of German industrial data. While industrial production was found to have recovered in April, the recovery was much smaller than forecast by economists.

The bloc’s largest economy saw production recover by 0.3%, far below forecasts of 0.6%, but significantly above the previous month’s fall of 2.1%.

Because of this, EUR investors may have grown concerned that the vital economic power within the Eurozone is unable to make good on earlier optimism, and may be closer to recessionary territory.

However, the European Central Bank (ECB) has maintained its hawkish stance towards inflation, despite signs of economic slowdown.

In a speech, ECB Governing Council Member Klaas Knot stated: ‘I expect two rate hikes in June and July. After that, the picture is unclear. In an optimistic scenario we will have done enough by then. But there are many upward risks that could possibly force us to raise rates further. I would not hesitate to do so if needed.’

Because of this, the Euro may have been cushioned from losses by increased bets on additional tightening from the bank.

Elsewhere, a cautious market mood during the European session on Wednesday may have contributed to additional support for the Euro, due to its nature as a safer investment bet than other peers.

Pound (GBP) Flat amid Dearth of Data

The Pound (GBP) saw its appeal limited on Wednesday by a continued lack of impactful macroeconomic data releases.

The lack of data appeared to weigh on sentiment towards Sterling, with investors opting to pursue other investment opportunities during the early European session.

However, Sterling may have been cushioned from substantial losses by elevated Bank of England (BoE) interest rate hike bets.

The Organisation for Economic Cooperation and Development (OECD) released a report earlier on Wednesday which stated that the UK was to see the highest level of inflation amongst the ‘big’ economies.

The OECD stated that: ‘Monetary policy will remain tight, increasingly weighing on output and lowering inflation, and the fiscal stance will be restrictive over 2023-24. However, little fiscal space is left, leaving the government significantly exposed to movements in interest rates.’

As such, this may have reaffirmed investor expectations that the BoE will continue to increase interest rates over the course of 2023, potentially to a peak rate of 5.5%.

Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB Speeches to Boost EUR?

Looking ahead for the Euro (EUR), a lack of impactful data releases through to the end of the week’s session may prevent the common currency from gaining meaningful ground against its peers.

However, European Central Bank speakers are pencilled in on Friday. Vice President Luis de Guindos is likely to the be most impactful, and if he chooses to maintain the ECB’s persistently hawkish stance towards controlling inflation, the single currency could make strides.

Elsewhere, market sentiment is likely to play a role in shaping the pairing. As the Euro is a safer currency than the increasingly risk sensitive Pound, a souring market mood is likely to result in the Euro strengthening over Sterling.

For the Pound, the current lack of data is set to continue through to the end of the week. Because of this, external factors may be likely to play a role in shaping the currency’s direction.

However, persistent bets on further tightening from the Bank of England may cushion Sterling from significant losses, as inflation appears to remain a sticking point for UK businesses and consumers.

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