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Pound Euro Exchange Rate to Sour on ECB Speeches?

Pound coin on a Euro banknote

GBP/EUR Exchange Rate Wavers as BoE Commits to Bringing Inflation Down

The Pound Euro (GBP/EUR) exchange rate is fluctuating as a speech from Bank of England (BoE) Governor Andrew Bailey failed to inspire investors.

At time of writing the GBP/EUR exchange rate is around €1.1490, relatively unchanged from this morning’s levels.

Pound (GBP) Supported by BoE Commitment to 2% Inflation Target

The Pound (GBP) is struggling for support this morning amid a lack of major economic data. In the wake of softer-than-expected labour market data, with a surprise uptick in unemployment, and wage growth missed predictions. Also highlighting a cooling labour market, was a fall by 136,000 in employees, the first decline in two years.

Meanwhile, BoE Governor Andrew Bailey gave a speech at the British Chamber of Commerce annual conference. Talking about monetary policy, as well as the economic challenges the UK faces, Bailey reaffirmed the central bank’s unwavering commitment to the 2% inflation target. However, he also mentioned that the effects of the BoE’s monetary policy are still being felt through the economy, hinting that a pause could be nearing. Bailey said:

‘Monetary policy can’t make the impact on real incomes go away I’m afraid. What we have to do is to take action to ensure that inflation falls as the external shocks abate – that inflationary impulses from these external sources do not cause persistent ‘second-round’ effects on domestic wage and price setting that could hold inflation up for longer.’

Looking ahead, and with a thin trading calendar for the rest of the week, the Pound could be left exposed to market sentiment and rate hike bets. The mixed messages from Bailey’s speech are unlikely to buoy investor mood, Sterling could sink on reduced rate hike bets.

Euro (EUR) Undermined by Softer-than-Expected Monthly Inflation

Meanwhile, the Euro (EUR) failed to pull away from the Pound as the final inflation readings for the Eurozone highlighted a softer-than-expected monthly inflation change.

Annualised inflation remained unchanged at 7% but monthly CPI edged lower at 0.6% against a preliminary 0.7%. A slowdown in inflation could be limiting GBP’s losses against the Euro amid pared rate hike expectations from the European Central Bank (ECB).

Looking ahead, speeches from several prominent ECB policymakers could influence the pairing. ECB Vice-President Luis de Guindos is set to speak later today. His comments on Monday hinted that the central bank was nearing the end of their tightening cycle, which pressures the Euro. If similar rhetoric is met, the single currency could dip. Guindos also warned of the negative impacts of further interest rate hikes.

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