Pound Euro Exchange Rate News: GBP/EUR Wavered amid Lack of Data and Elevated Rate Hike Bets

March 9, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavered amid Lack of Data and Elevated Rate Hike Bets

Pound (GBP) Quiet ahead of GDP Growth Data

The Pound (GBP) remained subdued on Thursday, much like the entire week, amid a lack of economic data. Mixed signals from the Bank of England (BoE) failed to lift Sterling against more aggressive central banks.

Elsewhere, with ongoing industrial action, the Office for National Statistics (ONS) revealed that one in 10 UK businesses were impacted by strikes in January. As industrial action continues across the country, with train staff, nurses, and teachers all staging walk outs over pay disputes, a quarter of UK businesses were unable to operate as normal.

Meanwhile, despite the market all but pricing in a 25bps interest rate increase from the BoE at the next meeting, murmurings of a pause still linger. Dovish comments from one of the more cautious members of the BoE policymakers only served to exacerbate these fears. Swati Dhingra, a member of the BoE’s Monetary Policy Committee (MPC), said:

‘In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution.’

Continued policy divergence between the BoE and the other major central banks could also be weighing on the Pound. With both the Federal Reserve and the European Central Bank (ECB) forecasted to raise interest rates, in contrast to BoE’s more dovish 25bps hike, demand could wane.

Euro (EUR) Supported by Elevated Rate Hike Bets

Meanwhile, the Euro (EUR) struggled for a clear direction on Thursday amid a thin trading calendar. With the wavering strength of the US Dollar, the negative correlation the Euro shares with the ‘Greenback’ has seen further fluctuations.

With the ECB policy meeting scheduled for next week, and an expected 50bps rate hike all but priced in, any further hints from policymakers could boost the Euro. ECB policymaker Francois Villeroy de Galhau reaffirmed the central bank’s commitment to bringing inflation down as he spoke at an event in Paris on Thursday.

Stating that inflation across the Eurozone remains far too high, Villeroy appeared hawkish, in line with other ECB members, and would ‘do whatever it takes’ to bring the level down to target. He added:

‘I can't comment on interest rates, but what is very important is the inflation expectations. The peak will come this semester, and then inflation will halve by the end of the year.’

GBP/EUR Exchange Rate Forecast: GDP Growth to Lift Sterling?

Looking ahead, the Pound Euro exchange rate could see further movement with the release of economic growth data for the UK on Friday. With MoM expected to improve from the underwhelming 0.5% drop from December, a 0.1% predicted rise could at least give GBP investors something to cheer.

Elsewhere, the Euro has final German inflation released. However, with a 50bps rate hike already baked in, the final reading is unlikely to influence proceedings. Market sentiment and the relative strength of the US Dollar could prove more influential.

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TAGS: Pound Euro Forecasts