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Euro pound (EUR/GBP) volatile despite upbeat Eurozone data

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Euro pound (EUR/GBP) changeable despite robust EU employment

The euro pound (EUR/GBP) exchange rate is trading without a clear trajectory this morning despite some robust releases from the Euro area.

At the time of writing the EUR/GBP exchange rate is trading at €0.8508, virtually unchanged from this morning’s opening rate.         

Euro (EUR) subdued despite strong data

The euro (EUR) is struggling to attract investor support this morning, despite signs of economic improvement within the Eurozone.

Unemployment in the Euro area initially fell to a historic low of 6.4% in April, indicating continued resilience in the bloc’s labour market. Some analysts have noted that ongoing signs of robust employment could provide the European Central Bank (ECB) with some additional to maintain restrictive policy.

However, it appears that firm market expectations of a June rate cut by the central bank are stymieing the common currencies upside potential, leaving EUR investors largely unmoved.

In addition to this, economic sentiment in the Eurozone throughout May rose to 96, as consumer and services confidence grew. The index hit a four-month high, edging higher from April’s levels of 95.6, though marginally missed market projections of 96.2.

The European Commission’s report stated:

‘Consumer confidence also improved slightly (+0.5), mainly due to consumers’ improved outlook on the general economic situation in their respective country and, to a lesser extent, due to their slightly more optimistic intentions to make major purchases.’

However, in addition to firmly rooted rate cut bets, an increasing appetite for risk this morning stifles the safe-haven euro’s potential gains.

Pound (GBP) buoyed by BoE rate cut bets

The pound (GBP) is trading without a clear trajectory this morning amid a lack of macroeconomic releases.

With data in short supply, shifting Bank of England (BoE) interest rate cut bets serve to keep Sterling’s head above water. Following UK Prime Minister Rishi Sunak’s call for a general election, markets have since slashed their expectations of any monetary unwinding occurring in June, prior to the vote.

Dean Turner, Chief UK Economist at UBS Wealth Management, said:

‘Short-term noise and one CPI print that’s good or bad can turn whole the narrative around central banks, and then the next month it will swing back again. There’s a bit more uncertainty around the timing and full extent of any moves from the Bank of England this year.’

Elsewhere, an increasing appetite for risk is further underpinning the increasingly risk-sensitive pound against some of its safe-haven rivals.

Euro pound exchange rate forecast: Eurozone inflation in focus

Looking ahead, the primary catalyst of EUR movement is likely to be the latest Eurozone inflation data, due for release tomorrow.

The headline consumer price index is forecast to have risen from 2.4% to 2.5% in May’s annualised figures. Should the data print as forecast, signs that inflation in the Euro bloc is stickier than previously anticipated may prompt a slight reduction in ECB rate cut bets, thereby lifting the common currency.

Looking to the pound, an ongoing data lull as the week draws to a close may leave Sterling vulnerable to global risk dynamics, with any bullish trading conditions likely to strengthen GBP against its safer rivals.