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Euro Pound (EUR/GBP) Exchange Rate Falls as ECB Policymaker Advocates for Rate Cuts

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Euro Pound (EUR/GBP) Exchange Rate Drops Following Dovish ECB Comments

The Euro Pound (EUR/GBP) exchange rate is weakening today, following surprisingly dovish commentary from European Central Bank (ECB) policymakers.

At the time of writing, EUR/GBP is trading around £0.8517, a fall of just over 0.3% from the morning’s opening levels.

Euro (EUR) Slides amid Dovish ECB Comments

The Euro (EUR) is slipping today, in the wake of dovish comments from European Central Bank policymakers.

During an interview, ECB governing council member Mario Centeno advocated for an imminent start to interest rate cuts.

Centeno stated that:

‘There is a lot more information, and (being) data-dependent is not (being) wage-data dependent…we don’t need to wait for May wage data to get an idea about the inflation trajectory. We can react later and more strongly, or sooner and more gradually. I am completely in favour of gradualism scenarios, because we have to give economic agents time to adapt to our decisions.’

Following the ECB’s recent interest rate decision, the central bank has aimed to push back against rate cut expectations.

Centeno’s comments are reaffirming the existing view in markets that the bank will begin unwinding its policy sooner rather than later. Because of this, EUR is falling to a multi-month low against Sterling.

Pound (GBP) Wavers as UK Firms Continue to Struggle

The Pound (GBP) is wavering today, amid reports that profit warnings amongst UK firms have increased significantly.

According to EY-Parthenon, 18% of UK firms have issued such warnings. This amounts to more firms in dire economic straits than during the build up to the 2008 financial crisis.

Elevated interest rates and falling confidence in the UK’s economy were signposted as causes, as UK businesses continue to struggle.

Jo Robinson, a partner for EY-Parthenon, commented:

‘While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.’

Euro Pound Exchange Rate Forecast: EU GDP in Focus

Looking ahead for the Euro, tomorrow brings the release of the latest Eurozone GDP growth rate, reflecting the fourth quarter.

On a quarterly basis, the bloc’s economy is forecast to have contracted by 0.1%, which could weigh heavily on EUR. If the economy has shrunk for another consecutive quarter, recession fears are likely to flare, which could bring additional headwinds.

This is followed on Wednesday by the latest German inflation data. In January, headline inflation is forecast to have cooled to 3.3% in the bloc’s largest economy, which my further amplify European Central Bank rate cut bets.

For the Pound, meanwhile, the continued lull in data releases may prevent the currency from finding a clear direction. Furthermore, risk appetite is likely to play more of a role in shaping GBP exchange rates.

As an increasingly risk-sensitive currency, a sour market mood could weaken the Pound against safer rivals such as EUR.