The Euro Pound (EUR/GBP) exchange rate is volatile this morning in the wake of the European Central Bank’s (ECB) hold on interest rates, as both the UK and Eurozone face renewed economic gloom.
At the time of writing the EUR/GBP exchange rate is trading at around £0.8531, virtually unchanged from this morning’s opening rate.
Euro (EUR) slumps amid bleak Eurozone outlook
The Euro (EUR) continues to face headwinds this morning in the wake of the ECB’s decision to keep interest rates unchanged, at 4.5%.
Despite the central bank’s hawkish rhetoric, Lagarde and her cohorts failed to convince markets that a ‘higher for longer’ stance towards interest rates would be a sustainable approach towards monetary policy in the long term.
While investors continue to place their bets on the first interest rate cuts occurring within the first half of 2024, EUR sentiment remains sour well into today’s session.
Further undermining the common currency today is the latest German consumer confidence index, which reported a significant contraction to -29.7 in February, falling below forecasts of -24.5 and dropping below January’s -25.4 reading.
Melanie Debono, senior economist at Pantheon Macroeconomics, a consultancy, said:
‘The plunge in the GfK measure of consumer confidence for February is not what we wanted to see; it casts a shadow over the consumer-led recovery in activity we are expecting at the start of the year. The fall in February more than reverses the increases seen in December and January and leaves the index at its lowest since March 2023.’
Pound (GBP) slumps amid UK economic pessimism
The Pound (GBP) is on the defensive this morning as a lack of notable data leaves Sterling vulnerable to concerns about the health of the UK economy.
Following yesterday’s bleak retail sales data from the Confederation of the British Industry (CBI), GBP sentiment remains a less than favourable investment option. Hitting a three-year low, and significantly missing forecasts, ongoing contractions in the UK’s retail sector serve to negate recent optimism surrounding the trajectory of the UK economy.
Economists continue to note how the UK’s startling economic weakness lies partially in the hands of persistently high interest rates, which may serve to pressure the Bak of England (BoE) to begin cutting interest rates sooner than anticipated.
Martin Sartorius, Principal Economist for CBI, commented:
‘Looking ahead, demand conditions in the sector will remain challenging as higher interest rates continue to feed through to mortgage payments and household incomes.’
Pound Euro exchange rate forecast: Eurozone GDP to sour EUR sentiment?
The next key data report comes on Tuesday, with the release of the Eurozone’s latest GDP figures. Growth in the fourth quarter of 2023 is forecast at -0.1% in preliminary readings, remaining in a state of negative growth from the previous quarter.
Should the data print in line with expectations, the common currency may face headwinds amid confirmation that the Euro area has fallen into a technical recession, following two consecutive readings of negative quarterly growth. Economic stagnancy in the Eurozone may also serve to boost the likelihood of ECB interest rate cuts in the first half of the year, further denting EUR.
Looking to the UK, an ongoing lull in notable economic data may leave the Pound Euro exchange rate vulnerable to shifts in risk sentiment. While developing geopolitical tensions continue to rock global markets, a spell of cheery trade could offer the increasingly risk-sensitive some support. However, gloomy trade may see the safe-haven Euro take precedent.
