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Pound euro (GBP/EUR) exchange rate forecast: EUR to tumble on dovish ECB rate hold?

Pound and Euro coins lined up

GBP/EUR exchange rate wavers ahead of ECB monetary policy meeting

The Pound Euro (GBP/EUR) exchange rate is trading without a clear trajectory this morning as markets anticipate the European Central Bank’s (ECB) looming interest rate decision.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1750, virtually unchanged this morning’s opening rate.

Euro (EUR) quiet despite strong PMIs

The Euro (EUR) is trading without a clear trajectory today, despite some upbeat PMIs from within the Eurozone. The finalised German services index reached a twelve-month high, printing at 54.2 in May and expanding for a third consecutive month.

In addition to this, the Eurozone’s services index expanded for a fourth consecutive month, though at a slightly softer pace in May and missing market projections of 53.3, printing at 53.2. However, EUR investors appear hesitant to place any aggressive bets on the common currency, ahead of tomorrow’s market moving monetary policy meeting, as a cautiously upbeat market sentiment further stymies the safe-haven currency.

Looking ahead, EUR exchange rates may face volatility tomorrow with the European Central Bank’s (ECB) latest interest rate decision due for release. While the central bank is widely expected to enact its first interest rate cut, investors will be particularly eager to assess any forward guidance.

Should policymakers suggest that more rate cuts are underway in the coming months, the common currency may tumble.

Also due for release on Thursday is the Eurozone’s latest retail data. Retail sales are forecast to have declined in April by 0.3%, retreating from March’s 0.8% increase. Confirmation of weak consumer activity may see EUR face additional headwinds, though the ECB’s hotly anticipated monetary update will likely overshadow any wider releases.

On Friday, Germany’s latest trade data may lend EUR some modest support, with a forecast rise of 1.1% in German exports.

A speech from ECB President Christine Lagarde later in the day may then imbue EUR exchange rates with additional movement, with any dovish assertions likely to leave the common currency rudderless as the week nears an end.

Pound (GBP) subdued amid services slowdown

The Pound (GBP) is struggling to attract support this morning following the latest PMI data. The finalised services index confirmed a sharp slowdown in services activity in May, pointing to easing UK inflationary pressures this morning, and thereby capping GBP’s upside potential.

Looking ahead, a lack of notable UK releases throughout the remainder of the week may see Sterling trade in a wide range against its rivals, driven primarily by global risk dynamics and shifting Bank of England (BoE) interest rate cut projections.

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