Euro Pound (EUR/GBP) Exchange Rate Narrows as EU Investor Pessimism Cools
The Euro Pound (EUR/GBP) exchange rate is narrowing this morning, as investor pessimism decreases in the bloc. However, a cheery market mood is serving to lift the increasingly risk-sensitive Pound.
At the time of writing, EUR/GBP is trading at around £0.8782, showing little movement from the morning’s opening rates.
Euro (EUR) Rises as Investor Pessimism Decreases
The Euro (EUR) is rallying today, following upbeat data releases for the Eurozone. The Sentix investor confidence index printed above expectations, coming in at -8.7.
Sentix commented on the reading, stating:
‘There is no doubt that the Eurozone economy has weathered the winter months better than many feared in the fall. The mild winter and efforts to conserve energy helped prevent a dangerous energy shortage.’
Furthermore, a weakening US Dollar could be adding extra tailwinds. The upbeat market mood is serving to sap sentiment towards the safe-haven ‘Greenback’.
With the currencies sharing a negative correlation, the weakness is filtering through to the single currency and bringing support.
However, these gains could be being capped by the latest Eurozone retail sales data. In February, sales fell by 0.8%, down from an upward revision of 0.8% in January. This slowdown in the retail sector may be weighing on the single currency.
Pound (GBP) Rallies amid Upbeat Market Mood
The Pound (GBP) is gaining ground today care of an upbeat market mood. Due to Sterling becoming an increasingly risk-sensitive currency, the bullish trade is bringing modest tailwinds.
Furthermore, persistent rate hike bets may be bringing extra support. Currently, markets are pricing in a further 25-50 bps of interest rate hikes from the Bank of England (BoE) over the summer. However, the potential for a pause does exist, which could be capping these bets.
Kirstine Kundby-Nielsen, FX Analyst at Danske Bank, commented:
‘Given the very large surprise we saw in inflation last time, we still think the Bank of England will hike by 25 basis points in May. The euro area and Britain’s economies are being hit by the same forces. Inflation is not coming down sufficiently.’
However, due to a lack of data releases, domestic issues could be keeping a lid on Sterling’s possible gains. Junior doctors started a four-day strike today over pay and working conditions.
EUR/GBP Exchange Rate Forecast: UK GDP to Boost GBP?
Looking ahead for the Pound, the main driver of movement could be Thursday’s GDP data release. Economists are forecasting February’s data to show an expansion of 0.1%, which could bring cheer to GBP investors.
Elsewhere, speeches from different Bank of England policymakers are scheduled. Chiefly, BoE Governor Andrew Bailey is scheduled to speak tomorrow afternoon. If he strikes a hawkish tone, GBP could rally.
For the Euro, the final reading of Germany’s inflation data is due on Thursday. If this shows inflation to have cooled further than preliminary readings, EUR could weaken.
Due to the common currency’s close correlation with the US Dollar, a packed data docket for the ‘Greenback’ could sway EUR.