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Pound Euro Exchange Rate News: GBP/EUR Rangebound after Slip in German ZEW Economic Sentiment

April 12, 2022 - Written by John Cameron

GBP/EUR Muted as German ZEW Economic Sentiment Declines

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today after Germany’s ZEW indicator of Economic Sentiment Index reported the largest drop in sentiment since the start of the Covid pandemic.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1967, with minimal movement from today’s opening levels.

Euro (EUR) Mixed Following Decline in German Sentiment

The Euro (EUR) is flat against the Pound (GBP) today after the ZEW Indicator of Economic Sentiment for Germany declined.

The index reported another slump in sentiment, with it reaching -41 in April.

This is down 1.7 points from the previous reading and is in line with March 2020 levels, but above the expectations of -48.

ZEW President Professor Achim Wambach stated:

‘The ZEW Indicator of Economic Sentiment remains at a low level. The experts are pessimistic about the current economic situation and assume that it will continue to deteriorate.

‘The decline in inflation expectations, which cuts the previous month’s considerable increase by about half, gives some cause for hope. However, the prospect of stagflation over the next six months remains.’

Moreover, uncertainty in the Ukraine crisis continues to weigh on EUR exchange rates, due to the possible economic fallout the conflict could have on the Eurozone economy.

At present, peace talks appear to have soured as Russian troops have reportedly used chemical weapons in Mariupol.

Earlier this week, Volodymyr Zelenskiy warned Vladimir Putin’s ‘Special Military Operation’ may enter a ‘new stage of terror’ and is asking the West to impose additional sanctions against Russia.

In addition, Germany’s final inflation reading for March confirmed a 7.3% increase, though is providing little impetus in the single currency at present.

Pound (GBP) Subdued Following Employment Data

The Pound (GBP) is rangebound against the Euro (EUR) this morning, following the publication of the latest UK employment data.

In the three months to February, the UK unemployment rate slipped marginally, as expected, to 3.8%, down from 3.9%.

At the same time, average earnings met market forecasts and revealed a 5.4% increase, up from 4.8%.

Despite the upbeat data, UK workers faced a cut in their real pay as the cost of living crisis strained incomes.

PA Media stated:

‘The Office for National Statistics (ONS) said regular pay excluding bonuses tumbled 1.8% in the three months to February when taking soaring inflation into account, as measured by the Consumer Prices Index (CPI) - the steepest fall since August to October 2013.

‘The ONS said real pay was now “falling noticeably”, with figures for February alone showing regular wages dropped 2.1% after inflation, which was the biggest drop since August 2013, the ONS added.’

Furthermore, as the war in Ukraine continues, investors remain wary of the risk-sensitive Pound.

GBP/EUR Exchange Rate Forecast: Ukraine Crisis to Remain Centre of Attention

Looking ahead, Russia’s invasion of Ukraine is likely to continue infusing volatility in the Pound Euro exchange rates.

Should the conflict escalate further, it may weigh on demand for both GBP and EUR.

Tomorrow, the UK’s consumer price index is forecast to report inflation jumped from 6.2% to 6.7% in March.

If this prints true, it may stoke additional concern over the UK’s cost of living crisis as household finances are squeezed further. In turn, it may hamper the economic recovery and worry GBP investors.

On the other hand, the European Central Bank (ECB) is set to hold interest rates at 0% when it concludes its latest policy meeting on Thursday.

Should ECB deliver some hawkish forward guidance, hinting at future rises, it may support the single currency.

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