Euro Pound Exchange Rate Fluctuates as Investors Brace for Eurozone Inflation
The Euro Pound (EUR/GBP) exchange rate is struggling for a clear direction this morning as Spanish inflation halves. This could indicate a slowdown in Eurozone inflation, paring rate hike bets.
At time of writing the EUR/GBP exchange rate is trading around £0.8798, a 0.27% fall from this morning’s opening levels.
Euro (EUR) Undermined by Falling Inflation and Sentiment
The Euro is under modest selling pressure today as Spanish inflation defied expectations and almost halved.
Headline CPI in Spain tumbled to 3.3% in March, almost half from the previous month. Falling energy prices contributed to the lowest level since August 2021. German inflation printed softer than expected, interest rate hike bets from the European Central Bank (ECB) could be pared.
Meanwhile, further weighing on the Euro was the latest economic sentiment index in the Euro area. Printing below expectations, optimism in the Eurozone softened from 99.7 to 99.3, against expectations of a modest rise. A second straight month of sliding optimism, stoked by recession fears and concerns over the banking sector could keep the Euro limited.
However, preventing further losses is the continued relative weakness in the US Dollar. The negative correlation the Euro shares with the US Dollar means a fall in the latter sees the single currency buoyed.
Pound (GBP) Underpinned by Modest Economic Optimism
The Pound is trading with mixed success this morning amid a wavering global market mood. The latest business survey from the Confederation of British Industry (CBI) has revealed the first positive expectations of private business growth in a year.
With the majority of businesses expecting positive growth in the private sector over the next three months, many are upbeat about the UK’s outlook. However, the UK is not quite out of the woods yet, explains Alpesh Paleja, CBI Lead Economist:
‘It’s encouraging that the private sector is expected to return to growth in the months ahead. Chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.
‘While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.’
Euro Pound Forecast: Eurozone Inflation to Bolster Rate Hike Expectations?
Looking ahead, the Euro Pound exchange rate could see further movement with the release of the latest inflation data for the Euro area. With a drastic softening in Spain, and a mild easing in Germany, if Eurozone inflation prints to forecast, rate hike bets could diminish, taking the Euro with it.
Meanwhile, the Pound could be impacted if the final readings for GDP growth differ from initial estimates. An expected stagnation could at least prevent a second consecutive quarter of contraction. But a surprise to the upside could lift Sterling.