Pound Euro Exchange Rate to Waver Further amid Policy Divergence and Economic Strain?

GBP/EUR Exchange Rate Firms in Risk-On Trade

The Pound Euro (GBP/EUR) exchange rate is firming today, underpinned by a broadly positive market mood.

At time of writing the GBP/EUR exchange rate is around €1.1624, up roughly 0.2% from this morning.

Pound’s (GBP) Gains Limited in the Face of Darkening Economic Outlook

The Pound is strengthening today, but headwinds loom on the horizon. Domestic and economic woes could take their toll on Sterling as the cost-of-living crisis worsens.

Fears over a sharper than expected slowdown in economic growth and potential recession are concerning investors.

Elsewhere, Germany and Ireland have released a rare joint statement denouncing the UK’s plan to unilaterally alter the Northern Ireland protocol, stoking fears of a potential trade war with the EU.

Tomorrow sees the publication of June’s finalised services PMI. If the sector misses the expectations of a moderate expansion, Sterling could be under renewed pressure.

Bank of England (BoE) Governor Andrew Bailey is due to make a speech tomorrow. If he echoes the dovish tone he did last week it could further undermine the appeal of the Pound.

Euro (EUR) Set to Weaken Further with Dovish ECB?

The Euro (EUR) is muted against the Pound today following the publication of some lacklustre EUR data releases.

Germany reported its trade surplus narrowed to an almost 30-year low in May, while the Eurozone’s producer price index also fell more sharply than forecast over the same period.  

Elsewhere we saw European Central Bank (ECB) Governing Council member Madis Muller hint that a 50bps interest rate hike should be expected from the bank in September, keeping in line with most other ECB members’ views.

Several other ECB policymakers are scheduled to speak this week. They are expected to discuss what steps the central bank will take to combat inflation, the Euro could strengthen if a hawkish consensus prevails.

Elsewhere, tomorrow sees the final print of the Eurozone’s own services PMI, and a confirmed slowdown in economic growth could weigh more on the Euro. Wednesday sees the release of Germany’s latest factory order figures. If they report another contraction of order growth could also weigh on EUR exchange rates.