The Pound-Euro rate could face further pressure if Eurozone inflation strengthens ECB rate-hike bets, while Sterling investors await Thursday’s BoE decision.
The Pound to Euro (GBP/EUR) exchange rate drifted lower on Monday as the single currency was largely able to shrug off growing French fiscal concerns.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1963. Down around 0.3% from the start of Monday’s session.
Pound to Euro (GBP/EUR): 1.197571 (-0.18%)
Euro to Dollar (EUR/USD): 1.12067 (+0.42%)
DAILY RECAP:
The Euro (EUR) got off to a stellar start this week, outperforming most other majors through Monday’s European session.
The single currency found support from a broad-based retreat in the US Dollar (USD), as improving hopes for a diplomatic resolution to the conflict in the Middle East encouraged investors to rotate out of long positions in the safe-haven currency.
This allowed EUR to shrug off news that credit ratings agency Fitch had revised its outlook on French sovereign debt from stable to negative late last week.
However, the Euro’s upside potential was ultimately capped as Germany’s latest retail sales data reported a shock contraction in consumer spending in September.
While placed on the defensive against the Euro, the Pound (GBP) was able to advance against the majority of its other peers on Monday.
Sterling drew support from a continued decline in UK government borrowing costs following the relatively well-received Autumn Budget delivered by Chancellor John Healey last week.
10-year gilt yields fell to their lowest levels since late September, with the bond market supported by falling oil prices as well as expectations that the Bank of England (BoE) will raise interest rates when it concludes its latest policy meeting on Thursday.
Near-Term GBP/EUR Forecast: Investor Caution to Limit Movement
Looking ahead, the next clear catalyst for the Pound Euro exchange rate comes on Wednesday, with the publication of the Eurozone’s latest consumer price index.
The preliminary CPI data for October is forecast to report another acceleration in inflation, with consensus estimates predicting it will accelerate from 3.8% to 3.9%.
This is likely to be seen as placing more pressure on the European Central Bank’s (ECB) to tighten monetary policy, with the rising odds of a December hike likely to lift the Euro.
In the meantime, the absence of any notable UK economic data may leave the pound to tread water through the first half of the week, particularly as GBP investors await the BoE’s latest interest rate decision on Thursday.
Our currency coverage draws on live market data, official economic releases and published bank research.
