Euro Pound (EUR/GBP) Exchange Rate Drops amid Cautious Market Mood
The Euro Pound (EUR/GBP) exchange rate is slipping today. Muted bets on the Euro (EUR) ahead of key US data may be weighing on the pairing. Better-than-forecast UK GDP data could also be pulling EUR/GBP lower.
At time of writing the EUR/GBP exchange rate is at around £0.8847, which is down roughly 0.3% from this morning’s opening figures.
Euro (EUR) Muted amid ECB Policymaker Split
The Euro (EUR) is seeing subdued movements today ahead of key US employment data. A cautious market mood may be lending support to EUR today, however.
EUR may also be ticking higher of the back of the final reading of Germany’s February inflation figures. The reading confirmed that inflation remained high at 8.7% last month. Rising food prices were highlighted as a key driver of the increase.
Mixed expectations for further action from the European Central Bank (ECB) may also be keeping EUR’s movements limited today.
Speaking on Wednesday, ECB policymaker Ignazio Visco signalled that future rate hike decision would be decided ‘meeting by meeting’. Visco also criticised some of his colleagues for their hawkish rhetoric.
In contrast to this, ECB President Christine Lagarde has stated that a 50bps rate hike from the central bank next week was ‘very very likely’.
Pound (GBP) Boosted by Above-Forecast GDP Figures
The Pound (GBP) is making strong gains today after above-forecast GDP figures. The data indicated that the UK’s economy expanded by 0.3% in January versus the forecast growth of 0.1%.
The better-than-expected growth was motivated by a return of activity in the UK’s education, health, and recreation sectors. Analysts stated that the data could help the country avoid a deep recession in the first half of 2023.
Paula Bejarano Carbo, associate economist at NIESR, said:
‘The services and construction February PMIs, indicate that activity will continue to pick-up in February, suggesting that any contraction we might see over Q1 is likely to be shallow.’
EUR/GBP Exchange Rate Forecast: Will ECB Hikes Rates by 50bps despite Policymaker Split?
Later today, a speech from ECB President Christine Lagarde could push the Euro higher if she signals further rate hikes from the central bank.
Looking to the coming week for EUR, January’s industrial production figures for the Eurozone on Wednesday could provide a boost to the single currency if the rise as forecast.
The ECB’s interest rate decision on Thursday will likely be the primary driver of the Euro’s movement next week. The central bank is expected to raise interest rates by 50bps.
Investors will be closely watching the forward guidance alongside the decision. Any commitment to further hikes could bolster the Euro. On the other hand, any signs of a dovish pivot could see EUR tumble.
The final reading of February’s Eurozone inflation figures on Friday could prompt a downturn in the Euro. The reading is expected to confirm that inflation cooled to 8.5% last month.
Looking ahead for the Pound, UK employment data on Tuesday could have a mixed effect on Sterling. If January’s unemployment ticks higher as predicted, it could add to the pullback in BoE rate hike bets and weigh on GBP.
Conversely, a forecast further rise in wage growth could add to concerns of a persistent wage-price spiral. This may prompt bets on further interest rate increases from the BoE and boost the Pound.
