GBP/EUR Exchange Rate Range Bound as Brexit Fears, Dovish ECB Subdue Tailwinds
The Pound Euro (GBP/EUR) exchange rate is wavering in a narrow range this morning as both currencies are short of stimuli. The market mood is mixed as US Treasury yields are up, but China’s GDP missed expectations, threatening to weaken the global economy.
At the time of writing, GBP/EUR is trading at €1.1846, virtually unchanged from today’s opening levels.
Pound (GBP) Trades Mixed on Rate Hike Uncertainty, UK Business Headwinds
The Pound (GBP) is trading in a mixed range against its peers today as sentiment is divided between Bank of England (BoE) rate hike expectations and concerns over Brexit difficulties. While negotiations between the UK and EU appear to be progressing well, the UK is already facing serious difficulties as a result of its independence.
Plenty of market commentators are concerned about the impact of an early BoE rate hike on UK growth prospects. According to analysts at Rabobank, fears around the medium-term outlook for the UK economy could hinder the prospects for the Pound next year and beyond.
UK inflation data on Wednesday could influence the central bank’s forward guidance, as core inflation is expected to fall on last month. Tomorrow’s speech from BoE governor Andrew Bailey may shed further light upon the situation.
Meanwhile, UK business are facing pressure from energy prices, supply chain difficulties and labour shortages.
The trade body for British manufacturers recently hit back at ministers’ accusations that firms have relied for too long on cheap foreign labour, calling on the government to recognise the challenges they are facing, working with them in partnership rather than blaming.
Economists argue that Brexit has exacerbated Britain’s current problems, despite rising demand globally: an estimated shortage of 100,000 truck drivers in the UK has been largely attributed to a post-Brexit exodus of EU nationals.
Euro (EUR) Dented by Dovish ECB Outlook
The Euro (EUR) is trading mixed against its peers as dovish signalling from the European Central Bank (ECB) limits single currency tailwinds, alongside an uncertain market mood. US Treasury yields are up, supporting the US Dollar (USD) and pressuring the Euro in comparison: however, bearish sentiment surrounding China’s disappointing GDP release encourages risk-off trading.
The ECB agreed at its last meeting that a moderately lower pace of asset purchases under the PEPP envelope would be appropriate for the remainder of the year, alongside favourable financing conditions: this despite some policymakers arguing that markets were expecting an end of stimulus by March 2022.
The maintenance of a dovish outlook makes it difficult for the common currency to find demand, with economists at Société Générale predicting continued downwards momentum for the Euro.
Pound Euro Exchange Rate Forecast: Inflation to Influence Trading?
Looking ahead, inflation data for both the UK and EU is due to print on Wednesday. While UK core inflation is expected to decrease on last month, the Eurozone figure is looking to print higher in September, which may increase pressure on the ECB to amend their monetary policy tightening measures.
In the meantime, speeches from various central bank officials may influence trading sentiment: tomorrow will see speeches from the ECB’s Elderson, Panetta and Lane, as well as the Bank of England’s Governor Bailey.