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Euro Pound (EUR/GBP) Exchange Rate Wavers amid a Cautious Market Mood

Euro Pound exchange rate outlook

Euro Pound (EUR/GBP) Exchange Rate Fluctuates amid Lingering Concerns for Growth

The Euro Pound (EUR/GBP) exchange rate is rangebound as a cautious market mood takes centre stage.

At time of writing, the EUR/GBP exchange rate is around £0.8585, relatively unchanged from this morning’s opening levels.

Euro (EUR) Supported by Rate Hike Expectations

The Euro (EUR) is struggling to find sustained demand this morning amid a lack of major economic data. Meanwhile, several speeches from European Central Bank (ECB) speakers failed to rally the Euro. Questions remain over how far the central bank will continue their tightening cycle.

With expectations of another hike at the next policy meeting all but priced in, market participants are now debating whether the central bank will deliver a 50bps hike. However, the attention is now starting to shift towards the September meeting. Minutes from the last policy meeting showed there were talks of a 50bps rate hike before 25bps was decided on. EUR investors could be buoyed by the prospect of a bumper raise at the next meeting. The meetings added:

‘It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner. The view was held that the Governing Council could consider increasing interest rates beyond July, if necessary.’

Pound (GBP) Undermined by Economic Woes

Meanwhile, the Pound (GBP) is also finding it difficult to muster up support amid a lack of data. However, the latest inflation data due to be released on Wednesday. With the figure still likely to be four times over the Bank of England’s (BoE) target rate of 2%, rate hike bets could be supporting Sterling.

Despite a modest easing of inflation, investors could still be concerned with inflation remaining high. UK inflation will remain higher than both Eurozone and the US. With the former falling to 5.5% in June, and the latter slipping to a two-year low of 3%.

Further weighing on Sterling are concerns that the UK economy is set to fall behind the Eurozone. GDP growth is predicted to grow by 0.6% in 2024, down from a previous forecast of 0.9% and lower than the expected 1% rise in the Euro area. Bloomberg said of the latest survey:

‘While the UK struggles to build any momentum, the euro area is expected to grow by 0.5% this year and 1% next. Inflation expectations for the UK were also revised up more than for any other major European economy.’

Euro Pound Exchange Rate Forecast: Red-Hot UK Inflation to Bolster Sterling?

Looking ahead, the Euro Pound exchange rate could see further movement with the latest inflation data for the UK on Wednesday. With expectations of only a mild easing of headline CPI to 8.2%, core inflation is set to have held by 7.1%, bolstering rate hike expectations.

Meanwhile, the Euro could be left exposed to market sentiment amid a thin trading calendar. If the market remains cautious, the safer Euro could be supported over the riskier Pound.