Euro Pound Dollar (EUR/GBP) Weakens amid Risk-On Impulse
The Euro Pound Dollar (EUR/GBP) exchange rate is falling despite business confidence modestly improving in Germany, Europe’s biggest economy.
At time of writing, the EUR/GBP exchange rate is around £0.8592, a 0.52% fall from this morning’s opening levels.
Pound Dollar (GBP) Surges amid Hints of Interest Rate Cuts
The Pound (GBP) is riding the wave of risk-on mood despite mounting economic uncertainty weighing on the UK, and Sterling.
Hawkish comments from Bank of England (BoE) Chief Economist were met with surprising comments from BoE Deputy Governor Sir Dave Ramsden. Pill earlier today warned that further rate hikes could be on the table, but concerns over a weakening labour force sours the mood. Reports of more than half a million workers have left the workforce since the pandemic is putting the labour market under pressure.
With unemployment at record lows, inflation could be pushed higher as employers will have to increase wages to fill vacancies. Pill talked of further interest rates to combat inflation:
‘Rising inactivity among the working age population represents an adverse supply shock, which adds to the difficult shorter-term trade-offs facing monetary policy.
‘There is still some more to do with bank rate in order to address prevailing inflationary pressures and complete the necessary normalisation of monetary policy.’
Ramsden on the other hand, suggested that the BoE could even entertain the prospect of cutting interest rates, if inflation and growth remain weaker than expected. The Pound could come under renewed pressure once the buoyant mood fades, amid an increasingly uncertain economic outlook.
Euro (EUR) Souring Despite Modest Boost in German Confidence
Meanwhile, the Euro is struggling against its peers this morning amid a risk-on market mood, despite a modest climb of business confidence in Europe’s largest economy. Hopes of a less-than-severe recession could lift the Euro.
The Ifo Business Climate climbed to 86.3, the highest in three months as business confidence modestly improved. Looking forward and optimism has also improved to a three-month high as export industry expectations climbed into positive territory. Price pressures have also shown to be slowing, lending further support. Carsten Brzeski, Global Head of Macro at ING, said of the survey:
‘The strong improvement of the Ifo index adds to recent glimmers of hope. However, this simply reflects a stabilisation at low levels and there is no reason to change the recession call, yet.
‘The sheer fact that things are no longer getting worse doesn’t mean that improvement is around the corner.’
Euro Pound Exchange Rate Forecast: ECB Meeting Minutes to Sour the Euro Further?
Looking ahead, the Euro Pound exchange rate could see further slides with the release of the ECB monetary policy meeting accounts. Any further hints of a slowdown in monetary policy could weigh on the Euro.
Meanwhile, the Pound could see downward pressure if BoE speakers adopt a dovish stance. Several speeches from BoE policymakers are set to take place later today.