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Pound Euro (GBP/EUR) Exchange Rate Forecast: Dovish BoE Comments to Stifle GBP?

Pound Coin on Euro Banknote GBP/EUR

GBP/EUR Exchange Rate Slumps as UK Inflation Cools

The Pound Euro (GBP/EUR) exchange rate declined today as the UK’s latest inflation data came in lower than forecast.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1448, down approximately 0.4% this morning’s opening rate.

Pound (GBP) Declines amid Falling Inflation

The Pound (GBP) retreated from recent wins this morning as the UK’s latest inflation data came in cooler than forecast.

With headline inflation reported at 4.6% in October, Bank of England (BoE) interest rate hike bets were significantly pared, as the central banks recent rate hiking cycle starts to be felt by the wider economy.

Amid waning investor interest, Sterling is vulnerable to shifts in risk appetite ahead of key data releases later in the week. The increasingly risk sensitive Pound may garner some support should trade remain gloomy, though GBP’s upside potential is likely to be limited in the wake of curtailed rate hike bets.

Investors may look to various BoE speeches ahead of further data in the coming days. On Thursday, BoE policymakers Randall Kroszner and Dave Ramsden are due to speak. Investors may assume that an increasingly dovish rhetoric surrounding interest rate decisions and rapidly cooling UK inflation could leave policymakers leaning towards accommodative monetary policy in the coming months.

Consequently, GBP may stumble should BoE policymakers indicate that further interest rate hikes remain unlikely.

Later in the week, the release of UK retail data on Friday is likely to drive GBP volatility. With a forecast increase of 0.3%, improving consumer activity may help to quell recent UK recession concerns, with signs of economic strength boosting Sterling sentiment as the week draws to a close.

Euro (EUR) Volatile on Mixed Data

The Euro (EUR) was trading in a wide range today as mixed data releases and a shifting market mood drove the common currencies movements.

Today’s trade data for September reported a significant narrowing in the Eurozone’s trade surplus, widely missing forecasts. Similarly, industrial production for September was down to -1.1%, indicating gradual economic slowing in the industry-heavy Eurozone, thereby denting EUR amid signs of economic weakness.

Coming up, EUR investors may look to European Central Bank (ECB) speeches for indication of upcoming interest rate decisions. Two hotly anticipated speeches from ECB President, Christine Lagarde, are likely to drive EUR movement in the coming days. While recent ECB commentary has erred on the side of dovish, Lagarde may boost bets on more tightening if she advocates for further rate hikes.

Due out on Friday is the Eurozone’s finalised inflation data. Should the final report deviate significantly from preliminary readings, EUR may encounter volatile trade towards the end of the week.

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