Pound Euro Exchange Rate News: GBP/EUR On the Back Foot as ECB Speculation Grips Trade

September 13, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR On the Back Foot as ECB Speculation Grips Trade

GBP/EUR Exchange Rate Weakened by Speculative EUR Investors

The Pound to Euro (GBP/EUR) exchange rate dropped on Monday as speculation of another 75bps rate hike from the European Central Bank (ECB) cheered EUR investors.

At time of writing the GBP/EUR exchange rate traded at around €1.1510, which was roughly down 0.2% from Monday’s morning rate.

Euro (EUR) Strengthened by Rate Hike Speculation

The Euro strengthened on Monday, up against most of its peers, as speculation of another 75bps rate hike gripped investors.

This follows the European Central Bank’s (ECB) historic decision to raise interest rates by 75bps in their September meeting.

The action was taken to help ease rising inflation which hit 9.1% in August, caused by spiking gas prices.

ECB President Christine Lagarde spoke out during the September meeting, warning investors that this first interest rate wouldn’t be the last:

‘We expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period’.

Lagarde hinting that rate rises are likely to continue into early 2023.

Bolstered by Lagarde’s comments on Thursday and reports on Monday morning from sources close to ECB policymakers confirming the hike, led to the single currency to strengthen on Monday.

Pound (GBP) Trading Bolstered by GDP Figures

The Pound (GBP) was up against most of its peers on Monday, despite being down against the Euro.

GDP figures showed economic growth in July, and although it wasn’t as much as expected it was enough to cheer GBP investors.

Economists forecast July’s GDP to print as 0.4%, but instead it printed as 0.2%. Economists warned the underwhelming figures will do little to ease fears that the UK will slip into a recession later this year.

AJ Bell financial analyst, Danni Hewson warned that slowing growth was the calm before the storm as budgets continued to tighten:

‘But even in celebration there was an undertone of caution and July’s rather anaemic growth came in below expectations, a factor which will add to concerns that the UK is slow marching towards recession.

‘Despite the package of support for households, which has just been announced by the government, the cost-of-living crisis hasn’t magically disappeared.’

Other economists anticipated further fluctuations in GDP figures as the passing of Queen Elizabeth continued to impact trade. An added bank holiday to mourn her death has contributed to economists concerns as they expect volatile data over the next couple of months.

However, this didn’t seem to bother investors on Monday as the GBP rebound was a most welcome relief.

GBP/EUR Exchange Rate Forecast: Underwhelming UK Data to Cause Headwind?

The Pound Euro exchange rate could remain weak over the next couple of days as UK job data could dent GBP gains.

Unemployment across the UK is expected to stay the same, as such investors will focus on the earnings release. If wage growth continues to lag well behind inflation the Pound could weaken.

Meanwhile the Euro could run into headwinds on Tuesday with the publication of Germany’s latest ZEW economic sentiment index. If September’s index reports sentiment in the Eurozone’s largest economy continued to deteriorate, then the Euro could weaken.

Otherwise, the Euro is likely to remain sensitive to rate hike speculation. Investors will be paying close attention to policymaker Andrea Enria’s speech on Wednesday, which may shed more light on the ECB’s next rate decision.

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TAGS: Euro Pound Forecasts