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Pound Euro (GBP/EUR) Exchange Rate Rebounds from 4-Day Low, Wavers Post US-Data

June 27, 2022 - Written by John Cameron


GBP/EUR Exchange Rate Weakens Following Rebound

The Pound Euro (GBP/EUR) exchange rate is levelling this afternoon following a rebound as US data impressed. As the US economy is the world’s largest, positive American data buoys global risk sentiment and lent GBP tailwinds.

At the time of writing, GBP/EUR is trading at €1.1607, down 0.2% from today’s opening levels.

Pound (GBP) Firms on US Data, Subdued by Political Concerns

The Pound (GBP) has traded in a mixed range today, buoyed on the one hand by positive risk flows while simultaneously subdued by a lack of economic data and domestic political headwinds.

This morning, Sterling was able to climb on risk-on sentiment, but soon succumbed to downside as political discontent filled newspaper headlines. As Prime Minister Boris Johnson faces criticism from fellow party members, colleagues, unions and the public, an uncertain future threatens to derail GBP trading prospects.

As Johnson attends the G7 summit in Austria, William Wragg, vice-chairman of the 1922 Committee, told the BBC: ‘The sense of disappointment that there is on the back benches towards the cabinet is palpable because you would have expected for some of them at least to show a bit of backbone.’

Wragg refers to those neglecting to oust Johnson from his premiership, despite a slew of resignations and public addresses citing the PM’s inadequacy as Conservative leader.

Despite political headwinds, GBP managed to firm against the Euro following the publication of America’s durable good data. The release revealed that orders grew by 0.7% in May 2022 rather than remaining unchanged, suggesting that business investment is holding up and boding well for the global economy.

Tailwinds were short-lived, however, as local UK news persisted in a downbeat vein. New data reveals that Britain’s 40-year high inflation means double-digit declines in the amount of spare cash families have, while the Food Standards Agency (FSA) and Food Standards Scotland (FSS) warned that the UK is facing ‘significant risks’ to the quality of food being imported.

Euro (EUR) Investors Await ECB Speech

The Euro (EUR) trended up overall throughout today’s session, buoyed by risk-on trading and investor optimism regarding this evening’s speech from European Central Bank (ECB) President Christine Lagarde.

Despite facing significant scrutiny recently over widely diverging bond yields between different EU countries, the ECB’s tone has become more hawkish, encouraging investors to adopt a more bullish outlook. An interest rate hike for July has now been fully priced-in, although there is some scepticism that the bank will be able to curtail inflation without causing further fragmentation.

At the Sintra Forum this Wednesday, the European Central Bank may have to defend its outlook to members of the Bank of England (BoE) and the Federal Reserve; all three banks are likely to discuss the prospect of a global recession, which Citibank analysts declared last week was 50% probable.

Also weighing upon the Euro ahead is the prospect of tightening oil supplies, as the possibility of Russia ‘turning off the taps’ becomes more likely. KPMG’s latest Economic Outlook report considered that interruptions of gas supplies from Russia, as well as a significant additional shock to global wholesale gas and oil prices, could add to the possibility of a recession.

However, EU countries intend to limit Russia’s options by applying a price cap to imports of Russian oil, refusing to pay above a certain price. Advocates of the solution argue that Russia has no alternative market to sell the pipeline gas in the short term, and unless it was prepared to take a huge hit to its revenues would have no option but to sell at the price dictated by Europe.

Guardian editor Patrick Wintour explains:

‘Twin caps on the price of Russian oil and pipeline gas are being canvassed heavily by the Italian prime minister, Mario Draghi… ‘There is now more than mild optimism that this will work,’ one source said.’

GBP/EUR Exchange Rate Forecast: Lagarde Speech to Inspire Near-Term Movement?

Looking ahead, this evening’s speech from ECB President Christine Lagarde is likely to be the prominent mover of the Pound Euro exchange rate. A lack of significant data elsewhere leaves GBP/EUR to trade on central bank dynamics, likely dipping down if Lagarde strikes a hawkish tone.

Into tomorrow, German consumer confidence data may have some effect on trading, potentially buoying GBP against the Euro if it falls as expected. Later in the day, more central bank speeches could affect the exchange rate, as Lagarde addresses markets once again, followed by the BoE’s Jon Cunliffe.

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