Euro Pound (EUR/GBP) Exchange Rate Narrows amid Sour Market Mood
The Euro Pound (EUR/GBP) exchange rate is narrowing this afternoon, as a souring market mood cushions EUR from downbeat German data.
At the time of writing, EUR/GBP is trading at around £0.8693, showing little movement from the morning’s opening rates.
Euro (EUR) Buoyed by Souring Market Mood
The Euro (EUR) is being buoyed by a souring market mood today, cushioning it against a sharper than expected drop in German economic sentiment.
The ZEW economic sentiment index printed at -10.8, down from -5.3. When this published earlier today, it prompted a downswing in EUR, but the bearish market mood has allowed it to recover.
Carsten Brzeski, Global Head of Macro at ING, commented:
‘To some extent, today’s index numbers are both backward and forward-looking. It’s both a reflection of recent weak macro data but also, once again, of a downscaling of growth expectations. The optimism at the start of the year seems to have given way to more of a sense of reality.’
Elsewhere, muted trade for the US Dollar may be providing some tailwinds. After a mixed set of retail data, the negative correlation the pairing shares may be allowing the Euro to gain some ground.
Pound (GBP) Undermined by Downbeat Labour Data
The Pound (GBP) is being undermined by disappointing jobs data today, with unemployment seen to have risen in March. Similarly, wage growth appears to be cooling.
Because of this, rate hike bets amongst investors appeared to recede, weighing on GBP. While the majority of investors view a 68% chance of a rate hike in June, there seems to be little zeal for further hikes.
James Smith, Developed Markets Economist at ING, explained:
‘It’s going to take time for wage growth to slow and that hiring issues will remain a medium-term economic challenge. But from the BoE’s perspective, today’s report was the first big data test ahead of the June meeting, and there’s nothing here that screams a need for further hikes.’
Furthermore, a souring market mood over the day’s trade appeared to limit Sterling further. As an increasingly risk-sensitive currency, GBP can be more susceptible to these shifts in market temperament.
EUR/GBP Exchange Rate Forecast: President Lagarde Speech to Boost EUR?
Later this afternoon, European Central Bank President Christine Lagarde is due to deliver a speech. If she continues to take a hawkish stance on inflation, EUR could rally as investors make bets on further tightening.
Tomorrow, the final Eurozone inflation print is due. If this cements the increase as is likely, it may do little for EUR. However, if there is a significant uptick, EUR could rally amid signs that the ECB would need to continue tightening.
For the Pound, Bank of England Governor Andrew Bailey is scheduled to speak tomorrow. Following the market’s mixed reaction to his post-hike speech, Bailey may take a hawkish stance which could rally GBP.