GBP/EUR Exchange Rate Jumps on Elevated BoE Rate Hike Bets
The Pound Euro (GBP/EUR) exchange rate is firming as markets believe that UK interest rates could reach 5.5% by the autumn.
At time of writing the GBP/EUR exchange rate is around €1.1578, a 0.36% leap from this morning.
Pound (GBP) Boosted by Rate Hike Bets
The Pound (GBP) is finding moderate success this morning against its peers, despite a lack of economic data. After inflation showed a smaller-than-expected drop, and a surprise jump in core inflation, the markets are now pricing in rate hikes beyond the June meeting.
With economic growth and the labour market showing surprising resilience, second-round effects of high interest rates could be approaching. With the rise in core inflation as well, investors are now expecting the Bank of England (BoE) could continue raising interest rates beyond the June meeting. Markets are now expecting the rates to hit 5.5% by the autumn.
Looking ahead, a quiet week of trading could see the Pound trade on market sentiment and rate hike expectations.
Euro (EUR) Slips on Falling Economic Sentiment
Meanwhile, the Euro (EUR) is struggling for demand this morning after several surveys indicated a decline in economic sentiment. With fears over Germany’s economy slipping into a recession, both consumer and business sentiment declined.
Elsewhere, with President Joe Biden and Republican House Speaker Kevin McCarthy finally coming to an agreement over the US debt ceiling, market sentiment was buoyed. Biden said of the successful negotiations:
‘This is a deal that’s good news for the American people. It takes the threat of catastrophic default off the table, protects our hard-earned and historic economic recovery.’
However, the negative correlation the Euro shares with the US Dollar is seeing the former fall on the latter’s strength.
Looking ahead, the Euro could see further movement with the latest inflation data from across the Eurozone. An expected sharp drop in inflation but stubbornly high core inflation could see the European Central Bank (ECB) unable to deviate from its monetary policy.
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