Category: Forex News

GBP/EUR Drops Amid BoE Rate Cut Speculation

By Published On: April 11, 20243.3 min readViews: 2150 Comments on GBP/EUR Drops Amid BoE Rate Cut Speculation

The Pound Euro (GBP/EUR) exchange rate weakened over the course of last week’s session, amid shifting interest rate cut bets for both central banks.

At the time of writing, GBP/EUR traded at around €1.1664, showing little movement from Friday’s opening levels.

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Pound (GBP) Exchange Rates Hampered by BoE Rate Cut Speculation

Following market closures on Monday in observance of Easter, the Pound (GBP) began to climb on Tuesday’s session, following a better-than-expected final manufacturing PMI. In March, sector activity returned to growth for the first time since July 2022, supporting GBP exchange rates.

Then, an absence of impactful macroeconomic data releases tempered the Pound’s movements against its peers. Furthermore, speculation continued to mount that the Bank of England (BoE) may begin to cut interest rates in June, applying additional pressure to the Pound.

Thursday saw the Pound weaken, following a downward revision to March’s finalised service sector PMI. The reading printed at 53.1, marking a faster slowdown in activity than the preliminary reading suggested.

On Friday, a continued absence of data saw Sterling waver throughout the session. Additionally, risk-averse trading conditions further sapped sentiment towards it.

Euro (EUR) Exchange Rates Pressured by ECB Rate Cut Bets

As European markets were closed on Monday in observance of the Easter holidays, the Euro (EUR) began the week on a quiet note.

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Tuesday saw the Euro firm against some weaker rivals, as its negative correlation to a weakening US Dollar leant it some support. However, a cooldown in German inflation capped its gains, as it prompted increased European Central Bank (ECB) interest rate cut bets.
Then, the Euro managed to tick upward against its peers despite an unexpected cooldown in Eurozone inflation.

Both core and headline rates cooled in March, despite expectations of the headline consumer price index to remain unchanged. Once again, because of EUR’s inverse correlation to USD, it managed to remain afloat against its peers.

The Euro saw mixed trade onThursday too. While the final services PMI for March for the Eurozone was revised higher, the common currency’s upward momentum was restricted by the publication of the European Central Bank’s latest meeting minutes.

The minutes strengthened the case for investors that the ECB would pursue a June interest rate cut, undermining EUR.

On Friday, the common currency wavered during the European session, amid downbeat economic data. German factory orders increased below expectations in February, while retail sales across the Eurozone fell by 0.5% on a monthly basis.

GBP to EUR Forecast: ECB Interest Rate Decision in Focus

Looking to the week ahead for the Euro, some impactful data releases are likely to induce volatility in the common currency’s trade.

First on Monday, the latest German trade data is due for publication. In February, the German trade surplus is forecast to have shrunk from €27.5 billion to €26 billion, which could weaken the Euro by suggesting struggling trade in the Eurozone’s largest economy.

Then, EUR exchange rates are likely to remain tepid as investors begin to look ahead to the European Central Bank’s interest rate decision on Thursday.

While the ECB is unlikely to cut interest rates, any indication in its accompanying forward guidance that the central bank will soon begin to unwind its monetary policy could weigh heavily on the Euro.

For the Pound, meanwhile, the week ahead looks set to be sparse in terms of data releases ahead of Friday’s GDP data print.

Because of this, short term focus may be shifted to the British Retail Consortium’s (BRC) latest retail sales data. Markets expect this reading to show a 1.1% increase in sales in March, which could support the Pound on Tuesday’s session.

On Friday, February’s UK GDP data is due for releases. Economists forecast that the UK economy will have contracted by 0.3% on a monthly basis, which could weigh heavily on the Pound and may indicate continued economic strife.

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