Euro Pound (EUR/GBP) Exchange Rate Unmoved by EU Trade Surplus Rise
The Euro Pound (EUR/GBP) exchange rate is trading narrowly today, despite an increase in the Eurozone trade surplus.
At the time of writing, EUR/GBP is trading at around £0.8659, showing little movement from the morning’s opening rates.
Euro (EUR) Propped Up by Trade Surplus Expansion
The Euro (EUR) is being cushioned today by an increase in the Eurozone’s trade surplus in August, showing healthy trade.
However, as it came far below market forecasts of a double in the surplus, the gains may be being limited.
However, concerns around the wider Eurozone economy may be overruling the positive news. Economists at Commerzbank stated:
‘If there is a fear that fiscal calamities will influence the monetary policy of the respective central bank, this dampens the positive effect of a restrictive monetary policy because there is a fear that it will no longer be sustainable.’
As such, inflation remaining high and monetary policy already being in restrictive territory is proving worrisome. Additional fiscal shocks, potentially in the energy market, could weigh heavily on the bloc’s economy, and weaken it.
Pound (GBP) Undermined by Jittery Market Mood
The Pound (GBP) is being undermined today by a sour market mood, as markets brace for further developments in the conflict between Hamas and Israel.
Following a series of airstrikes by Israel, markets are growing concerned that the conflict will escalate further.
This is prompting the increasingly risk-sensitive Pound to be unable to gain much ground, as investors move to safer assets.
Additionally, comments from Bank of England (BoE) Chief Economist Huw Pill may be adding further pressure.
While headline inflation has been falling recently, Pill was quick to assert that:
‘We still have some work to do, in order to get back to 2%. And we probably have some work to do, to ensure that when we get back to 2% we do so in a way that is sustainable through time. It is important that we do not declare victory prematurely, just because movements which are relatively mechanical in headline inflation are working their way through.’
However, Pill further ruled out rate cuts in the near future. The ‘table mountain’ approach to monetary policy appears here to stay, likely cushioning GBP.
EUR/GBP Exchange Rate Forecast: German Economic Pessimism to Dent EUR?
Looking ahead for the Euro, the core catalyst of movement is likely to be tomorrow’s release of the latest ZEW economic sentiment index.
Economic pessimism is forecast to have decreased in Germany for October, but is forecast to remain deep in negative territory. Because of this, the improvement may be offset by continuing concerns over the bloc’s largest economy, which could weaken EUR.
For the Pound, tomorrow brings the release of August’s latest labour data. While the UK’s unemployment rate is forecast to have held at 4.3%, this could be offset by signs of cooling wage growth.
Wage growth including bonuses is forecast by economists to have cooled to 8.3%, which may lead to pared back interest rate hike bets. This could, in turn, weaken Sterling.