Pound Euro Exchange Rate News: GBP/EUR Climbs after Eurozone’s Trade Deficit Widens

Modified: Friday, 18 March 2022 12:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Climbs after Eurozone’s Trade Deficit Widens

GBP/EUR Soars After Eurozone’s Trade Deficit Widens Further Than forecast

The Pound Euro (GBP/EUR) exchange rate is trading higher today on the back of some disappointing Eurozone trade figures.

At the time of writing, the GBP/EUR exchange rate is trading at approximately $1.1888, up roughly 0.3% from today’s opening levels.

Euro (EUR) Slips Amid Disappointing Trade Balance

The Euro (EUR) is falling against the Pound (GBP) today after the Eurozone recorded a larger-than-expected trade deficit in January.

In January, the Eurozone suffered a €27 Billion deficit. The figures were significantly worse than market forecasts for a €-2.6 Billion contraction and was a sharp drop from December’s €-4.8 Billion.

This was largely driven by surging energy prices and a rise in imports. At the same time, exports increased at a softer rate.

In turn, this has placed pressure on the Euro.

Further limiting the appeal of the single currency is heightened geopolitical uncertainty.

The progress being made in peace talks between Russia and Ukraine has reportedly slowed down.

Combined with the Eurozone’s close proximity to the warfare and EUR’s negative correlation with the boosted safe haven ‘Greenback’, the Euro is struggling against the majority of its peers today.

Later this afternoon, US President Biden is expected to speak with his Chinese counterpart Xi Jinping in an effort to prevent them aiding Russia with its ‘special military operation’.

Should these discussions turn sour, it may further bolster USD and in turn, weigh on EUR.

Pound (GBP) Climbs Despite Dovish BoE Outlook

The Pound (GBP) is rising against the Euro (EUR) today largely due to weakness in the single currency.

Yesterday, the Bank of England (BoE) hiked interest rates by a quarter of a percent, as expected. Rates were raised from 0.5% to 0.75% as BoE seeks to ease surging inflation.

In January, inflation reached a thirty year high of 5.5%, which is forecast to increase to 7% by mid-April.

However, capping the Pound’s appeal was the bank’s dovish forward guidance.

The rate hike was not unanimous with policymaker Sir Jon Culliffe voting to leave interest rates on hold.

Also no members of the Monetary Policy Committee (MPC) broke ranks to vote for a larger hike, indicating there is limited appetite for further hikes for the time being.

Stuart Cole, Economist at Equiti Capital, said:

‘Clearly the deteriorating growth outlook is becoming more of a concern to the MPC, and the easing off on the monetary tightening accelerator evidences this.

‘Alongside this, the MPC may also be recognising that current inflationary pressures are largely supply-side driven and as such there is little the MPC can do to fight them, and concluded that the deflationary impact of the fiscal tightening facing the UK from this April will be enough to counter the inflationary boosting potential of higher wages claims.’

GBP/EUR Exchange Rate Forecast: Ukraine Crisis to Remain in Centre Stage

Looking ahead, the Russia-Ukraine war will remain the key driving force of the Pound Euro exchange rate for the time being.

The outcome of the US-China talks later today could influence the pairing this evening.

Should President Biden see it necessary to impose sanctions onto China, it may drive further volatility into the market and weigh on both GBP and EUR.

Into next week, downbeat German PPI may also add pressure to the single currency. Germany’s PPI for February is forecast to decrease from 2.2% to 1.7%.

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TAGS: Pound Euro Forecasts