EUR/GBP Exchange Rate Firms despite USD Strength, EU Inflation Concerns
The Euro Pound (EUR/GBP) exchange rate is trending up slightly this morning, ahead of the Eurozone’s consumer confidence release this afternoon. Relative strength in the Euro comes despite a rebounding US Dollar (USD) and ongoing inflation concerns across the bloc.
At the time of writing, EUR/GBP is trading at £0.8442, slightly raised from today’s opening levels.
Euro (EUR) Trades Mixed as Economic Recovery Questioned
The Euro (EUR) is trading up against several of its peers today, despite concerns from economists and policymakers over the bloc’s economic recovery.
Upbeat Italian data revealed this morning that industrial sales expanded by 0.8% in August and 13.8% year-on-year: however, the European Central Bank’s Ignazio Visco warned that supply bottlenecks are starting to weigh on Italian economy and could last longer than expected.
Other ECB officials retain their dovish stance, confirming that an interest rate hike is unlikely to occur before 2023. Strategists at ING bank predict that:
‘A new programme could be introduced to replace PEPP when it ends in March 2022, [indicating that] purchases will continue for the whole of 2022, and will continue well into 2023.
Given the ECB’s commitment only to raise interest rates once purchases have ended, we think this means no hikes until the latter half of 2023.’
Meanwhile, strength in the US Dollar (USD) caps gains in the single currency, as market risk appetite eases with investors growing increasingly nervous ahead of a key debt deadline for China’s Evergrande.
The property giant admitted there is ‘no guarantee’ it will be able to meet its financial obligations, announcing yesterday that it had formally abandoned plans to sell a 50.1% slice of Evergrande Property Services, one of its most profitable units.
Pound (GBP) Sinks as November Rate Hike Bets Falter
The Pound (GBP) is trading in a mixed range today as uncertainty over BoE monetary policy tightening weighs upon trading sentiment.
Yesterday’s weaker-than-expected inflation data cast doubt upon investors’ expectations for a November rate hike. According to economists at OCBC Bank:
‘The GBP may struggle should the UK CPI miss turn into a catalyst for the market to turn more sane over expected BoE rate hikes.’
The majority believe that September’s fall in inflation is temporary – a result of skewed data as the effect of the ‘eat out to help out’ scheme dropped out of last month’s calculations – however, several Monetary Policy Committee (MPC) members are of the opinion that an early rate hike could be ‘self-defeating’ regardless.
According to the CME Group’s BoE Watch Tool, the probability of rates rising to 0.50 in November fell to 32% from 59% following the UK inflation publication. Such a dramatic change in odds has prompted a slight repositioning by most GBP investors.
In addition, today’s joint release from the Confederation of British Industry (CBI) has revealed a significant drop in business optimism and industrial trends orders, with the former falling from 27 to 2 in the fourth quarter. The data is likely to weigh further upon Sterling throughout the day.
Euro Pound Exchange Rate Forecast: Pound to Slide Lower on CBI Data?
Poor CBI data is likely to apply downside pressure to Pound exchange rates throughout today’s session, as concerns about supply shortages in the next three months escalated further, weighing upon business optimism.
Meanwhile, consumer confidence in the Eurozone is also expected to fall this afternoon, albeit less dramatically. Households’ assessments of the current economic situation became brighter last month, although the data is still in negative territory.