Euro Pound Exchange Rate Climbs in Response to Lagarde’s Hawkish Stance
The Euro Pound (EUR/GBP) exchange rate has slowed its gains this afternoon, having risen sharply at the opening of today’s European session.
The Euro’s (EUR) strength came in response to European Central Bank (ECB) President Christine Lagarde’s hawkish comments and Germany’s hotter-than-predicted Ifo business climate index. Meanwhile, the Pound (GBP) is dented by the UK’s ongoing cost-of-living crisis.
At the time of writing, the EUR/GBP exchange rate is trading at around £0.85.
Euro (EUR) Gains Ground After ECB President Strikes Hawkish Tone
The Euro initially witnessed a sharp rise against the Pound today, though its gains are beginning to slow.
EUR exchange rates were bolstered after ECB President Lagarde published a hawkish blog post this morning.
Lagarde signalled that the bank is likely to raise interest rates at both the July and September meetings as inflation soars across the bloc.
Further supporting the single currency is Germany’s better-than-expected Ifo business index. The indicator revealed a three-month high of 93 during May. This is up from April’s upwardly revised 91.9 and above market forecasts of 91.4.
According to Ifo President Clemens Fuest, ‘the German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine.’
Therefore, Germany – Europe’s largest economy – is currently not at risk of a recession, which is thereby boosting demand for the single currency.
Pound (GBP) Slumps amid UK Cost-of-Living Crisis
Meanwhile, the Pound is dropping against the Euro as the UK cost-of-living crisis undermines Sterling.
The cost-of-living crisis continues to exert pressure on household incomes as prices soar. In April, inflation surged from 7% to 9%, with the Bank of England (BoE) predicting inflation may reach 10% by 2022’s third quarter.
Experts have warned that approximately 40% of the UK population will be in fuel poverty by October. In spite of this, the UK government remains unwilling to provide additional financial support to those in need.
Experts and charities alike have been calling on Rishi Sunak to increase benefit payments in accordance with inflation so that families can have access to their fundamental needs.
In turn, some experts are concerned the UK may enter a recession by the end of the year which is further dampening GBP exchange rates.
Euro Pound Forecast: Influx of PMI Data Releases in Spotlight
Looking ahead, the Euro Pound exchange rate may be impacted by an influx of PMI flash data.
Tomorrow, the flash PMIs for the UK, the Eurozone and Germany will be released. All publications are expected to reveal a slowdown in business activity during May, and any surprise findings may influence EUR/GBP.
Furthermore, the pair may also be impacted by Brexit developments. At present, the UK government is threatening to unilaterally amend the Northern Ireland protocol. Should these amendments be made without the consent of the EU, it may spark a UK-EU trade war.
Moreover, the Euro may be impacted by a speech from the ECB’s Lagarde on Tuesday.
Will Lagarde continue to strike a hawkish tone and bolster demand for the single currency?