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Euro Pound (EUR/GBP) Exchange Rate Rangebound as NI Protocol Negotiations Falter

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Euro Pound (EUR/GBP) Exchange Rate Trends Sideways Despite Optimism Surrounding German Economy

The Euro Pound (EUR/GBP) exchange rate is trading within a narrow range today. A return of global risk appetite may be capping any gains for EUR/GBP. On the other hand, optimism surrounding the German economy may be lending support to the exchange rate.

At time of writing the EUR/GBP exchange rate is at around £0.8882, which is virtually unchanged from this morning’s opening figures.

Pound (GBP) Falls as NI Negotiations Stall

The Pound (GBP) is dropping today despite an optimism market mood. Sterling is trending sideways against the Euro, however.

GBP may be seeing losses from news surrounding UK-EU negotiations over Northern Ireland’s trade arrangements.

At the end of last week, UK Prime Minister Rishi Sunak had hinted that a deal concerning NI’s post-Brexit arrangements was close to being finalised. Monday has seen DUP and Conservative politicians signalling that it may take longer to reach a deal than previously thought.

The Pound could also be seeing headwinds from a paring back of bets on further action from the Bank of England (BoE). Markets are continuing to bet on a slower pace of policy tightening following softer inflation data last week.

Euro (EUR) Slips amid Risk-On Market Mood

The Euro (EUR) is edging lower against its peers today. A return of risk appetite in the markets may be weighing on EUR, although the single currency is trading in a narrow range against the Pound.

EUR may also be coming under pressure from evidence of a downturn in the Eurozone’s construction sector. The latest figures released by stats body Eurostat showed a 2.5% decline in construction sector output in December.

On the other hand, the Euro may be underpinned today from signs of resilience in the German economy. The Bundesbank, Germany’s central bank, painted a more optimistic picture for the country in its latest monthly report.

Recent hawkish comments from European Central Bank (ECB) officials may also be lending support to EUR today. Policymakers Isabel Schnabel and Francois Villeroy de Galhau signalled their support last week for further interest rate hikes.

EUR/GBP Exchange Rate Forecast: Will Eurozone Inflation Downturn Weigh on EUR?

Looking to the week ahead for the Euro, output data for the Eurozone’s private sector could help bolster EUR if it prints as forecast on Tuesday. The latest PMIs for Germany and the Eurozone are expected to improve in February, with many sectors set to return to growth.

Also on Tuesday, a rise in Germany’s economic sentiment could provide an additional boost to the Euro.

On Wednesday, the final reading of Germany’s January inflation could also lend support to EUR. The data is expected to confirm an uptick, potentially placing pressure on the ECB to hike rates further. On the other hand, an expected downturn in final Eurozone inflation on Wednesday could cap any gains.

Finally for the Euro, a forecast negative reading of German consumer confidence could prompt losses on Friday

For the Pound, February’s reading of private sector PMIs could pull Sterling lower if the figures confirm a downturn on Tuesday. In particular, the UK’s dominant services sector is expected to remain in negative territory. On Thursday, the latest data for the UK’s retail sector could add to the poor outlook for the country if it prints as forecast.