Pound Euro Exchange Rate News: GBP/EUR Climbed as Eurozone Consumer Inflation Expectations Decline

April 4, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Climbed as Eurozone Consumer Inflation Expectations Decline

Euro (EUR) Undermined by Pared Rate Hike Bets

The Euro (EUR) struggled for demand on Tuesday in the wake of the European Central Bank’s (ECB) consumer expectations survey for February. Falling expectations for inflation sapped demand for the Euro as further rate hikes hang in the balance.

Compared to January’s survey, consumer inflation expectations fell further, as it declined to 8.7% in February from 9.5%. The ECB could perceive this downturn as a sign that their interest rate hikes are working, and could begin the process of slowing, or even pausing. EUR investors could be deterred as rate hike bets are pared.

However, with core inflation continuing to rise, there is a strong possibility that the tightening cycle has yet to peak, which could be limiting losses for the Euro. Further lending some modest support is hawkish rhetoric from ECB policymaker Robert Holzmann commented:

‘I think we can afford another 50 basis points, and in particular, if no social agreement emerges to temper inflation, we’ll have to do more to produce it.’

Meanwhile, Europe’s largest economy saw balance of trade printing below expectations. With Germany’s trade surplus remained at €16bn, unchanged from January, missing a predicted €17bn. However, it is still the largest trade surplus since July 2021.

Pound (GBP) Rallied Despite Dovish BoE

Meanwhile, the Pound (GBP) continued its dominant run of form as it found renewed strength against its peers despite a lack of economic data.

A speech from Bank of England (BoE) policymaker Silvana Tenreyro failed to dent Sterling despite the central bank’s most dovish member warning of a rate cut soon. In light of the recent developments in the global financial sector, as well as persistent inflationary pressures domestically, Tenreyro warned that the BoE could be cutting the cash rate sooner than expected:

‘I expect that the high current level of bank rate will require an earlier and faster reversal, to avoid a significant inflation undershoot.

‘With bank rate moving further into restrictive territory, I think a looser stance is needed to meet the inflation target.

‘Looser stance can be achieved either through lower bank rate today or through lower bank rate in future.’

Despite the dovish comments, Sterling investors shrugged off the dovish comments and continued to climb.

GBP/EUR Exchange Rate Forecast: BoE Speech to Bolster the Pound?

Looking ahead, the Pound Euro exchange rate could see further movement with a speech from BoE Chief Economist Huw Pill, who is likely to comment on the recent banking sector crisis and monetary policy. Any hawkish comments could lift Sterling.

Elsewhere, the Euro will continue to trade on market sentiment for the rest of the session. Looking to tomorrow, the final Eurozone services PMIs are due to print. An expected climb to 55.6 from 52.7 could boost the Euro.

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TAGS: Pound Euro Forecasts