Pound Euro Exchange Rate Trades Narrowly as UK-EU Tensions Grow

June 28, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Trades Narrowly as UK-EU Tensions Grow

Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Risk-On Mood

The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. UK-EU Brexit tensions are likely weighing on the currency pair, as well as reduced bets on hawkish action from the Bank of England (BoE).

Hawkish comments from European Central Bank (ECB) President Christine Lagarde may also be pushing GBP/EUR lower today. A return of risk appetite may be limiting major losses, however.

At time of writing the GBP/EUR exchange rate is at around €1.1585, virtually unchanged from this morning’s opening figures.

Pound (GBP) Dips as NI Protocol Bill Passes

The Pound (GBP) is ticking lower against its competitors today. A risk-on trading impulse could be limiting major losses for Sterling against its safer rivals, however.

The currency could be seeing downward momentum due to fresh Brexit-related tensions between the UK and EU today. Monday evening saw a majority of MPs vote in favour of legislation designed to override elements of the Northern Ireland Protocol.

The bill saw heavy criticism from both Conservative and opposition MPs, with many questioning the legality of such a move. Critics also feel that such a move only heightens the possibility of a trade war between the UK and EU.

The Pound may also be suffering today amid speculation that the BoE is set to adopt a softer approach to interest rate hikes than initially hoped. The fear of a recession has caused analysts to predict that the central bank will take a more dovish stance in upcoming meetings.

Euro (EUR) Trends Higher as ECB Officials Confirm Fragmentation Tool Plans

The Euro (EUR) is seeing mixed movements today. A mild return of risk appetite is causing the single currency to fall against its riskier rivals. On the other hand, hawkish comments from ECB President Christine Lagarde may be helping EUR to climb elsewhere.

In a speech at the ECB’s annual retreat in Sintra, Lagarde attempted to calm investors fears by stating that the central bank’s anti-fragmentation tool would keep countries on the ‘straight and narrow’. After criticism that the ECB had been unclear on exactly how their tool might work, the comments may be helping to bolster the single currency today.

Lagarde also reaffirmed the central bank’s commitment to raising interest rates in the coming months.

ECB policymaker Martins Kazaks’ hawkish comments may also be pushing the Euro higher today. Kazak signalled that high inflation could prompt the ECB to begin ‘front-loading the increase’ and raise rates by more than the expected 0.25%.

Risks of a possible recession within the Eurozone may be capping investor enthusiasm for the currency today, however. The trading bloc has seen poor growth levels amid the war in Ukraine. Concerns that Russia may cut off its energy supplies to the Eurozone could also be weighing on the currency.

GBP/EUR Exchange Rate Forecast: Will Bailey Give Cautious Outlook as Predicted?

Looking ahead for Sterling, BoE Governor Andrew Bailey’s speech on Wednesday could cause the currency to drop if he maintains the cautious tone anticipated by investors.

Additionally, the final reading of first quarter GDP figures on Thursday may also weigh on the Pound if they add to worries over the UK’s economic recovery.

Finally, continued reaction to the UK government’s attempts to override elements of Northern Ireland Protocol could dent confidence in Sterling.

For the Euro, inflation figures for Germany on Wednesday and the Eurozone on Friday could push the single currency higher if rates rise as forecast. Increased bets on future rate hikes from the ECB off the back of these figures may continue to proper EUR upward.

A speech from ECB President Christine Lagarde on Wednesday could have a similar effect if she reaffirms the central bank’s course of action.

If Thursday’s unemployment figures for Germany and the Eurozone remain high as forecast then EUR could climb even higher.

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TAGS: Pound Euro Forecasts