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Euro Pound Exchange Rate Muted Following Slump in German Consumer Confidence

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Euro Pound Exchange Rate Rangebound as Germany’s Consumer Confidence Hits Record Low

The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range after Germany’s consumer confidence index dropped to a record low.

At the time of writing, the EUR/GBP exchange rate is trading at around £0.8448, with minimal movement from today’s opening levels.

Euro (EUR) Edges Slightly Lower as German Consumer Confidence Nosedives

The Euro (EUR) is trading slightly lower against the Pound (GBP) today as Germany’s latest consumer confidence index fell to a record low.

According to GfK, the Germany’s consumer confidence index for May has plummeted to -26.5. This is below April’s downwardly revised -15.7 and down from the market forecast of -16.

The Ukraine crisis is largely responsible for the slip in confidence as energy prices and other household costs surged. In turn, this reduced hopes for a strong economic recovery following the pandemic.

GfK consumer expert Rolf Buerkl commented:

‘The war in Ukraine and rates of high inflation have dealt a severe blow to consumer sentiment. This means that hopes of a recovery from the easing of pandemic-related restrictions have finally been dashed.

‘There will only be a sustainable trend shift in consumer sentiment if there are successful peace negotiations on the war in Ukraine.’

Further undermined the Euro this morning is the news that Russia has halted gas exports to Poland and Bulgaria, after the countries’ refused to pay for supplies in roubles.

This comes after Vladimir Putin ordered ‘unfriendly’ countries must pay for their goods with Russian currency.

Although Poland’s deputy foreign minister Marcin Przdacz is ‘pretty sure that we will manage to handle this’, the development is unsettling EUR investors who fear other countries such as Germany could also have their supplies restricted by Russia.

Pound (GBP) Subdued Ahead of Interest Rate Decision

The Pound (GBP) is rangebound against the Euro (EUR) ahead of the Bank of England’s (BoE) upcoming interest rate decision next week.

The BoE policymakers have been broadly dovish in recent weeks which, alongside concerns over a decline in consumer spending, is weighing on interest rate hike bets.

Moreover, the ‘Partygate’ scandal continues to weigh on the UK political landscape.

Last week, Boris Johnson was fined for being in breach of lockdown laws in 2020. As a result, Johnson is facing renewed calls to resign.

The PM is also facing a formal inquiry by the Privilege Committee into whether Johnson knowingly misled the house over his role in several lockdown-breaking parties which were held in Downing Street.

Should he be found guilty of misleading Parliament, Johnson will be expected to resign. This is unnerving GBP investors and placing additional pressure on Sterling

Euro Pound Forecast: Will BoE Governor Deliver a Dovish Speech?

Looking ahead, the Euro Pound exchange rate is likely to be influenced by a speech from BoE Governor Andrew Bailey.

On Thursday, Bailey is scheduled to speak: will he strike a broadly dovish tone? If so, it may weigh on interest rate hike bets and weaken GBP exchange rates.

Later today, the Pound may be dented by the Confederation of Business Index’s distributive trades for April. The figures are expected to slip from 9 to -3.

On the other hand, the single currency may be impacted by a speech from European Central Bank (ECB) President Christine Lagarde this evening.

Will Lagarde deliver a broadly hawkish tone and provide EUR with some support?