Euro Pound (EUR/GBP) Exchange Rate Trends Sideways amid Risk Appetite Return
The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range today. Bets on additional interest rate hikes from the European Central Bank (ECB) may be propping up the pairing today. Disappointing UK GDP data may also be keeping the exchange rate buoyed.
However, EUR/GBP could be coming under pressure from a risk-on mood.
At time of writing the EUR/GBP exchange rate is at around £0.8805, virtually unchanged from this morning’s opening figures.
Euro’s (EUR) Losses Cushioned by Hawkish ECB Rhetoric
The Euro (EUR) is edging lower today as global risk appetite improves. A weaker US Dollar may also be pushing some safe-haven flows towards EUR, however.
EUR may be seeing its losses limited by bets on a 25bps interest rate hike from the ECB at its May meeting. As reported by Reuters, policymakers are now converging on a 25bps move due to recent financial instability.
Bets on this policy tightening from the ECB may be finding additional strength after hawkish comments from rate setter Joachim Nagel.
Nagel signalled that policymakers should stay alert to the possibility of sticky inflation, and that the ECB remained committed to bringing down inflation.
James Knightley, Carsten Brzeski, James Smith, and Iris Pang of ING had the following to say on the ECB’s forward path:
‘It’s a phase that will be characterised by a genuine meeting-by-meeting approach and a slowdown in the pace, size and number of any further rate hikes. We’re sticking with our view that the ECB will hike twice more – by 25bp each before the summer – and then move into wait-and-see mode.’
Better-than-expected output data for the Eurozone’s industrial sector may also be lending support to the single currency today. February’s production rose by 1.5% versus the forecast increase of 1%.
Pound (GBP) Slips as UK Economy Flatlines
The Pound (GBP) is facing headwinds today following the release of February’s GDP data. Sterling may also be coming under pressure amid mixed signals from Bank of England (BoE) policymakers regarding further interest rate hikes.
February’s GDP figures indicated a stagnation in the UK economy after a 0.1% contraction in January. The UK economy’s performance is thought to have been affected by widespread industrial action amidst the country’s cost-of-living crisis.
Tom Stevenson, investment director for Personal Investing at Fidelity International, said:
‘The British economy failed to grow at all in February, confirming that, while the UK may avoid recession, it is the weak link among the developed world’s economies. The UK’s growth is slower than in other rich countries and its inflation higher.’
The upward revision in January’s GDP figures may be cushioning the Pound’s losses today. The possibility that the UK may avoid a first quarter recession may be bolstering investor confidence in Sterling.
EUR/GBP Exchange Rate Forecast: Could Bets on ECB Hikes Push EUR Higher?
A lack of data for the Euro over the rest of this week could leave the single currency vulnerable to any changes in market mood. A more upbeat market mood could dent confidence in EUR.
EUR could also be affected by any changes in expectations of policy tightening from the ECB. The Euro could be bolstered by any the continued pricing in of a 25bps rate hike from the central bank.
The Pound may edge higher following a speech from BoE Chief Economist Huw Pill later today. Following signals of further rate hikes from BoE Governor Andrew Bailey on Wednesday, Sterling could see further gains if Pill echoes this sentiment.
