GBP Under Pressure As Bond Yields Rise

The Pound to Euro (GBP/EUR) exchange rate softened ahead of the Easter weekend in the wake of market volatility that followed US President Donald Trump’s latest comments on the war with Iran.

WEEKLY RECAP:

The Pound (GBP) came under renewed pressure as UK gilt yields began to rise again following President Trump’s latest remarks on Iran.

In a national address, Trump sparked fresh concern over the situation in the Middle East.

While he suggested the war with Iran is ‘nearing completion’, he did not offer a definitive timeline and warned that Iran could be hit ‘extremely hard’ over the coming weeks.

His comments dampened earlier hopes of a US withdrawal from the region and contributed to a rebound in oil prices.

This, in turn, pushed UK bond yields higher, amid concerns over the inflationary impact of rising energy costs and the potential for increased government borrowing to support households.

Meanwhile, the Euro (EUR) traded with modest support as a cautious shift in market sentiment boosted its relative appeal.

Aiding the single currency was a hardening of European Central Bank (ECB) interest rate hike expectations amid the threat of more persistent inflation pressures.

However, EUR’s gains remained limited due to its strong negative correlation with the US Dollar (USD), which saw stronger demand following Trump’s comments.

GBP/EUR Forecast: Easter Lull to Limit Volatility?

Looking ahead, with markets now reopening after the long Easter weekend, trading conditions are expected to normalise.

However, lingering uncertainty surrounding developments in the Middle East may continue to inject volatility into the Pound to Euro exchange rate.

The focus will turn to the latest UK and Eurozone services PMI releases.

Sterling may struggle if we see a repeat of the manufacturing PMI trend, where UK growth was revised lower while Eurozone activity was revised higher.