Euro Pound (EUR/GBP) Exchange Rate Trends Sideways amid Risk Appetite Pullback
The Euro Pound (EUR/GBP) exchange rate is trading in a narrow range today. The pairing may be finding support from bets on further interest rate hikes from the European Central Bank (ECB). A cautious market mood may also be bolstering the exchange rate.
Evidence of a split between policymakers could be weighing on EUR/GBP, however.
At time of writing the EUR/GBP exchange rate is at around £0.8890, virtually unchanged from this morning’s opening figures.
Euro (EUR) Pushed Higher by ECB Rate Hike Bets, Trends Sideways against GBP
The Euro (EUR) is edging higher today amid a pullback in global risk appetite. EUR may be benefitting from a weaker US Dollar (USD) but saw losses against the Pound (GBP).
The Euro could be finding additional support from persistent bets on further interest rate hikes from the ECB.
Speaking on the ECB’s next meeting, ING’s global head of macro Carsten Brzeski said:
‘Macro developments since the February meeting have not brought any relief for inflation and the inflation outlook, which is why a 50bp rate hike looks like a done deal.’
There is however evidence of a rift between ECB board members regarding the central bank’s forward path. Speaking on Wednesday, ECB policymaker Ignazio Visco stated that future interest rate decision should be ‘driven by data’ and criticised his more hawkish colleagues.
A fresh wave of Russian missile attacks targeting energy infrastructure across Ukraine may be limiting bets on EUR, however.
Pound (GBP) Firms despite Expectations of BoE Slowdown
The Pound (GBP) is firming with no clear catalyst today. Sterling’s may be seeing subdued movements due a cautious market mood.
Gains for GBP may also be capped by a continued pullback in bets on policy tightening from the Bank of England (BoE). Markets have already priced in a 25bps rate hike from the BoE at its next meeting, with some analysts even forecasting a rate hike pause from the central bank.
James Smith, developed markets economist at ING, did not agree with this sentiment:
‘While the Bank hinted strongly last month that it stands ready to pause hikes, persistent wage pressures suggest there’s still a little more work to do.’
The prospect of reduced industrial action may be providing a boost to GBP today. On Wednesday, the RMT union confirmed that it would be putting a revised pay offer to its members.
EUR/GBP Exchange Rate Forecast: Will German Inflation Push EUR Higher amid Renewed ECB Bets?
Looking ahead to the remainder of the week for EUR, the final reading of Germany’s February inflation figures on Friday could boost the single currency if they print as forecast. Inflation in the trading bloc’s largest member is expected to remain unchanged at 8.7%, close to October’s high of 8.8%. The data could also prompt renewed bets on further ECB rate hikes.
Also on Friday, a speech from ECB President Christine Lagarde could provide further upward impetus to the Euro. Lagarde has been consistently hawkish in previous speeches and has repeatedly hinted at further rate hikes.
For the Pound, GDP data on Friday could push Sterling higher if it prints as expected. The UK’s economy is forecast to have expanded by 0.1% in January after December’s 0.5% contraction. The figures could also help to assuage fears of a protracted recession in the UK.
Also on Friday, an expected narrowing in the UK’s goods trade deficit could prompt an uptick in GBP.
