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Pound Euro Exchange Rate to Bolster on Hawkish BoE Speech?

Pound Coin on Euro Banknote GBP/EUR

GBP/EUR Exchange Rate Climbs amid Elevated BoE Rate Hike Expectations

The Pound Euro (GBP/EUR) exchange rate is wavering as upgraded economic forecasts from the European Commission offset elevated rate hike expectations from the Bank of England (BoE).

At time of writing the GBP/EUR exchange rate is around €1.1496, relatively unchanged from this morning.

Euro (EUR) Underpinned by Lifted Growth and Inflation Expectations

Meanwhile, the Euro (EUR) is modestly supported by upgraded growth and inflation forecasts from the European Commission (EC).

The European economy is expected to grow much faster than previously anticipated this year and the next, however, inflation is also predicted to remain higher than expected. The EC said that the European economy ‘continues to show resilience in a challenging global context’, adding:

‘The EU economy is managing the adjustment to the shocks unleashed by the pandemic and Russia’s aggression of Ukraine remarkably well. Last year, the EU successfully managed to largely wean itself off Russian gas.’

Further boosting the Euro could be increased interest rate expectations on the back of the EC’s statement. With inflation remaining high, further tightening could be expected as the European Central Bank (ECB) continues to battle inflation.

Looking ahead, the Euro could see movement with the release of both final GDP growth and employment data tomorrow. An expected expansion in the European economy could boost EUR, as well as a strong increase in employment. If both sets of data print to forecast, the Euro could climb on elevated rate hike expectations from the ECB.

Pound (GBP) Quiet amid Lack of Data

The Pound (GBP) is struggling for a clear direction this morning amid a lack of economic data. A wavering market mood also contributed to leaving Sterling listless. However, elevated interest rate hike expectations could be keeping the Pound afloat.

Looking ahead, GBP investors could be looking towards a speech from Bank of England (BoE) Chief Economist Huw Pill. Scheduled to speak at an online event about the May meeting, Pill could reiterate his comments from last week. Noting that inflation was finally starting to come down, the persistence of further inflationary pressures could keep the door open to further tightening.

Elsewhere, the latest labour market data could sway proceedings. However, it is not expected to impress the BoE as employment growth is predicted to be robust with a rise of 330k rise, and unemployment set to slip to 3.7%. With a labour market remaining tight, wage growth is also set to accelerate, which could increase expectations for further rate hikes.

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