Euro Pound (EUR/GBP) Exchange Rate Bolstered by ECB Rate Hike Bets
The Euro Pound (EUR/GBP) exchange rate is climbing today. A contraction in the UK’s economy and signs of a recession may be helping to boost the currency pair today.
Expectations of further interest rate hikes from the European Central Bank (ECB) could also be bolstering EUR/GBP today.
At time of writing the EUR/GBP exchange rate is at around £0.8766, which is up roughly 0.6% from this morning’s opening figures.
Euro (EUR) Gains Against Pound, Although Poor Growth Forecasts Weigh on EUR
The Euro (EUR) is slipping against many of its rivals today, although is buoyant against the Pound (GBP) and US Dollar (USD). A risk-on mood is likely limiting EUR’s gains.
A downward revision to Eurozone growth forecasts may also be weighing on the Euro today. The European Commission (EC) announced on Friday that they would be revising its growth forecasts lower.
The EC now anticipates growth to slow to 0.3% by the end of 2023. Inflation forecasts for 2023 were also revised and inflation is now expected to hit 7%.
On the other hand, hawkish comments from several European Central Bank (ECB) officials today are likely inspiring EUR’s upward movement. ECB Vice-President Luis de Guindos signalled that markets may be underestimating ‘the persistence of inflation’.
Pound (GBP) Slides as UK Economy Contracts in Third Quarter
The Pound saw some volatile movements earlier today, but is ultimately falling against the majority of its peers today.
The UK’s worsening outlook likely prompted Sterling’s falls today. GDP figures this morning indicated a contraction in the UK’s economy in the third quarter of 2022. Analysts predicted that the data may signal the beginning of a deep recession for the UK.
Activity across the UK’s private sectors also exhibited a drastic slowdown in the year’s third quarter. The country’s dominant services sector ground to a halt amid severely reduced consumer spending.
Victoria Scholar, head of investment at Interactive Investor, said:
‘With pressures from the cost-of-living crisis, the war in Ukraine and rising interest rates, the UK economy appears to be on track to fall into a recession by the fourth quarter, in what could be the longest period of economic contraction in at least a century.’
Dovish comments from Bank of England (BoE) policymaker may also be weighing on Sterling today. Board member Silvana Tenreyro signalled that the central bank may look at keeping rates unchanged at upcoming meetings.
EUR/GBP Exchange Rate Forecast: Will Eurozone Data Releases Fuel Further ECB Rate Hike Bets?
Looking to the week ahead for the Euro, multiple data releases on Tuesday could prompt movement in the single currency. The Eurozone trade deficit is forecast to narrow which could bolster confidence in the single currency.
On the other hand, a slowdown in third quarter GDP growth could weigh on EUR if figures print as forecast.
On Thursday, the final reading of October’s inflation figures could help to bolster EUR. The further rise in Eurozone inflation could also see increased ECB rate hike bets.
For the Pound, unemployment figures on Tuesday could push the currency higher if they remain close to record-lows as forecast. The data could also add to bets on further rate hikes from the BoE.
If inflation figures reach fresh record highs on Wednesday as forecast, they could have a similar effect.
On Thursday, the UK government’s long-awaited fiscal statement could pull GBP lower if they go ahead with planned spending cuts. Finally for the Pound, a predicted drop in retail sales on Friday could see Sterling slide if figures print as forecast.
