GBP/EUR Exchange Rate Rebounds Modestly Despite Dropping Confidence in UK Economy
The Pound Euro (GBP/EUR) exchange rate is staging a modest recovery today as expectations mount of the Bank of England (BoE) to intervene in stemming Sterling’s losses.
At time of writing the GBP/EUR exchange rate is around €1.1200, relatively unchanged from the morning’s opening levels.
Pound (GBP) Wavers as Hopes Grow of BoE Stepping in
The Pound is fluctuating today, after haemorrhaging demand in the wake of the market meltdown caused by the mini-budget announced on Friday.
Chancellor of the Exchequer Kwasi Kwarteng unveiled sweeping tax cuts and witnessed the Pound crash to all-time lows against the US Dollar, and subsequently sunk to lows against all its peers. A modest bounce back was seen today as hopes grew of the BoE stepping in and holding an emergency meeting.
Thomas Pugh, economist at RSM UK, expects the BoE to intervene, and investors will be keen to see how the central bank could alleviate some of these fears. Pugh said:
‘As such, we’re likely to see MPC members and Governor Bailey making lots of public statements over the next few days emphasising the MPC’s commitment to 2% inflation and that it intends to raise interest rates sharply over the rest of this year. If combined with a sensible government plan for managing the public finances, that could be enough to halt the drop in the pound.’
Looking ahead, GBP investors will be keenly watching any movements from the BoE, including a speech from BoE Monetary Policy Committee Member Silvana Tenreyro. If she hints at any intervention from the central bank, Sterling could see a much-needed boost.
Euro (EUR) Softens amid Equally Waning Confidence
Meanwhile, the Euro also struggled for demand today as business confidence in Germany sunk to its lowest level since the height of the pandemic in May 2020. The Ifo released their monthly business sentiment indicator for Europe’s largest economy, far below market forecasts. Expectations going forward were equally as pessimistic, highlighting the gloomy atmosphere surrounding the Eurozone.
Lending some moderate support to the Euro, however, is the continued hawkish stance from the European Central Bank (ECB). At a speech today, ECB President Christine Lagarde outlined the central bank’s commitment on tackling inflation and emphasised its aggressive stance going forward.
Looking ahead, and a lack of major data could see the Euro trade on market sentiment alone. The ongoing Ukraine invasion is likely to continue impacting the Euro area, any further news could influence the Euro.
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