Euro Pound (EUR/GBP) Exchange Rate Dips Despite Hawkish ECB
The Euro Pound (EUR/GBP) exchange rate is struggling for demand this morning despite a third consecutive month of improving German business sentiment.
At time of writing, the EUR/GBP exchange rate is around £0.8699, a 0.27% fall from this morning’s opening levels.
Euro (EUR) Slumps Despite Improving Business Confidence
The Euro (EUR) is failing to muster much strength this morning despite German business rising for the third consecutive month.
Reaching 88.6 in December, the highest level since August, the score also beat forecasts. Despite inflation remaining high and the energy crisis not quite averted, businesses in Europe’s biggest economy have become less pessimistic over the coming months. Institute for Economic Research (IFO) economist Klaus Wohlrabe is optimistic about the German economy:
‘The likelihood of a recession has reduced with today’s IFO data. Business climate improves across nearly all sectors, (with) 50.7% of businesses complained about supply chain bottlenecks in Dec vs. vs 59.3% in November.’
Meanwhile, a continued hawkish stance from the European Central Bank (ECB) could be limiting any further losses. ECB policymaker Gediminas Simkus has lent further credibility to another half-percent raise in February. Simkus stated that there ‘will undoubtedly be a 50bps increase’.
Pound (GBP) Firms Despite Myriad of Economic Challenges
Meanwhile, the Pound is climbing against some of its stronger rivals this morning amid a quiet trading day. Countless economic headwinds persist, but Sterling is managing to shrug off downward pressure and remains buoyant.
Retailers have been enduring a torrid festive period, with footfall and sales far below expectations. Analysts are warning that the final run up to Christmas could be very subdued. A toxic cocktail of a cold snap, industrial action, and the cost-of-living crisis could all hit the retail sector.
Elsewhere, growing wealth inequality threatens to continue hampering the UK. The Equality Trust reports that the number of UK billionaires has increased by a fifth since the pandemic. Jo Wittams, Co-Executive Director of the Equality Trust said of the situation:
‘This sudden explosion in extreme wealth was in large part due to measures aimed at lessening the impact of Covid-19 on the economy, as central banks pumped trillions of dollars into financial markets, leading to a stock market boom which effectively lined the pockets of shareholders.’
Euro Pound Exchange Rate Forecast: ECB Speech to Boost the Euro?
Looking ahead, the Euro Pound exchange rate will be trading on market sentiment for the rest of the day. Tomorrow sees a speech from ECB Vice President Luis de Guindos. Any further hints at monetary policy going forward could see the Euro climb.
Meanwhile, a lack of major data could weigh on the Pound. The relentless domestic headwinds could catch up with Sterling and sap demand.