Pound to Euro Rate Hovers Around 1.172 - GBP/EUR News

January 26, 2024 - Written by Tim Boyer

STORY LINK Pound to Euro Rate Hovers Around 1.172 - GBP/EUR News

The Pound to Euro exchange rate briefly moved above the 1.1700 level after the stronger-than-expected business confidence data on Wednesday, but failed to sustain the gains and settled just above 1.1690.

GBP/EUR will have scope for gains if the ECB forward guidance is less hawkish than expected later in the day. Otherwise, resistance may be tough to break down.

The Euro-Zone data has remained weak, but the Euro has been protected by expectations that the ECB will push back against market expectations of interest rate cuts.

Improved sentiment towards China has also offered Euro protection.

Following on from an equity-market support package earlier in the week, the Chinese central bank announced a cut in the reserve ratio requirement of 0.5% to 10.0% from February 5th.

The moves bolstered confidence of a decisive set of moves by China to support the economy.

MUFG commented; “At the very least the latest developments have helped to temporarily ease investor pessimism towards China’s economy and Chinese assets that had been building at the start of this year.

The German IFO business confidence index declined to 85.2 for January from a revised 86.3 previously. This was significantly below consensus forecasts of 86.7 and the weakest reading since October 2022.

The current assessment declined to 87.0 from 88.5 with the expectations component declining to 83.5 from 84.2.

The IFO commented; “Sentiment among German companies has deteriorated further at the beginning of the year. The German economy is stuck in recession.”

According to ING; “Looking beyond the near term, we expect the current state of stagnation and shallow recession to continue. The risk that 2024 will be another year of recession is high.”

It added; “It would be the first time since the early 2000s that Germany has gone through a two-year recession, even though it could be a shallow one.”

The ECB will announce its latest policy decision on Thursday with no change in interest rates expected and the refi rate holding at 4.5%.

Overall forward guidance on any timetable for rate cuts will be a key element for the Euro.

According to BMO; “There had been some rumblings about the March 7 meeting being ‘live’ but they were silenced pretty quickly, given the emphasis on the first quarter wage negotiations. April 11 is unlikely as there won’t be any updated staff forecasts to lean on. That brings us to June 11 (also our call).”

ING points to Lagarde’s comments and noted; “if she can avoid this and leave markets with a sense that the European Central Bank is truly data-dependent, short-term euro interest rates could nudge a little higher.” This would provide Euro support

Deutsche Bank expects inflation will decline more rapidly than expected by the ECB; "We continue to expect headline and core HICP inflation rates to fall to 2% already before the middle of this year, a year or more earlier than the ECB forecasts."

It added; “This inflation drop will mean rising real interest rates, effectively policy tightening in a recessionary environment. This would raise the risk of an outright recession and a genuine shock to the labour market."

There have been no major UK developments, but there have been warnings over the underlying UK budget and debt situation.

In its latest report, the Institute of Fiscal Studies (IFS) warned that the UK is in an unfortunate economic and fiscal bind with a prolonged period of stagnation, elevated debt levels and higher taxes.

With weak growth, it will be very difficult to secure an exit from stagnation and bring debt levels down.

According to the IFS "It might be easy to announce immediate tax cuts, without any hint of what it is the state currently does that it will stop doing, or what taxes will rise in future, but this trade-off cannot be wished away.”

It added; "it will be more difficult to reduce the debt-to-GDP ratio over the next parliament than in any other parliament since the 1950s".

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts