Euro Pound (EUR/GBP) Exchange Rate Bolstered Despite Risk-On Mood
The Euro Pound (EUR/GBP) exchange rate is climbing today. Bets on an aggressive rate hike from the European Central Bank may be bolstering the currency pair. A poor outlook for the UK economy may also be boosting EUR/GBP.
At time of writing the EUR/GBP exchange rate is at around £0.8647, which is up around 0.3% from the morning’s opening figures.
Euro (EUR) Gains as Investors Anticipate Hawkish ECB Hike
The Euro is making solid gains today. The single currency is likely seeing increased bets as US Dollar (USD) investors remain cautious ahead of key data. Expectations of an aggressive interest rate hike from the European Central Bank (ECB) may also be helping to push the single currency higher.
Multiple ECB policymakers have spoken in favour of a swift schedule of policy tightening ahead of the ECB’s meeting next week.
ECB board member Klaas Knot said:
‘A swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded. The broadening and deepening of our inflation problem generates the need to act forcefully.’
An above-forecast rise to Eurozone PPI figures in July today likely also gave investors cause to speculate on a 0.75% rate hike from the ECB.
Significant gains for the Euro could be capped by recession fears, however. Today’s German balance of trade figures likely added to these concerns today. The country’s trade surplus narrowed in July amid soaring energy prices.
Pound (GBP) Ticks Lower as UK Outlook Worsens
The Pound (GBP) is edging lower against its rivals today. Continued poor forecasts for the UK economy are likely weighing on Sterling.
Economists have highlighted the increased possibility of a recession amid soaring energy costs and high inflation.
Kit Juckes, currency expert at Société Générale, was straight to the point in their analysis:
‘The UK economy is in recession, the balance of payments is catastrophic and more/faster rate hikes won’t do much to restore confidence.’
Bets on a 0.75% interest rate hike from the Bank of England (BoE) may be helping to prevent drastic losses for the currency, however. Investors believe that the currency’s poor performance could prompt such a rate hike from the BoE.
EUR/GBP Exchange Rate Forecast: Will ECB Hike Rates as Forecast?
Looking to the week ahead for the Euro, the final reading of August’s Eurozone and German service PMIs on Monday could pull the single currency lower. Germany’s service sector is forecast to contract with an easing to Eurozone services growth.
Also on Monday, a predicted uptick in July’s retail sales could limit any potential losses.
Wednesday’s third quarter GDP growth figures could also see gains for the Euro if they print as forecast. The growth figures could help to bely fears of Eurozone recession.
Investors will be most keenly awaiting the ECB’s interest rate decision on Thursday. If the central bank raises rates by 0.75% as forecast then it could see EUR leap off the back of hawkish market expectations.
For the Pound, the final reading of August’s services PMI could push GBP higher if the sector expands as forecast. The figures could help to restore some confidence in the UK economy’s long-term forecasts.
Tuesday’s retail sales figures from the BRC could have a similar effect if they print as forecast.
Sterling could also be affected in the coming week by the appointment of a new Prime Minister on 5 September. If Liz Truss wins the Conservative leadership as predicted by pundits then it could prompt uncertainty in Sterling over the government’s forward path.