GBP/EUR Slips Amid Shifting Rate Cut Bets

GBP/EUR Exchange Rate Slumps amid Risk-On Flows

The Pound Euro (GBP/EUR) exchange rate edged lower on Monday despite lacklustre Eurozone data as risk-on flows drove market volatility.

At the time of writing GBP/EUR was trading at €1.1580, down approximately 0.2% from Monday’s opening rate.

Euro (EUR) Fluctuates amid Downbeat Consumer Confidence

The Euro (EUR) was mixed on Monday following the latest Eurozone consumer outlook data, while an increasing appetite for risk further stymied the common currency.

The latest preliminary consumer confidence printed below expectations of -14, coming in at -14.7 in April. While still deeply negative, the index was at its highest level since February 2022, suggesting an increasingly positive outlook across the Euro area.

Following an influx of dovish commentary from European Central Bank (ECB) policymakers last week, economists have surmised that surmounting hopes that the central bank will begin lowering interest rates may be fuelling recent economic optimism in the Eurozone.

Elsewhere, risk-on flows throughout the session served to prevent any significant movement for the safe-haven Euro, leaving the common currency to trade in a relatively narrow range against the majority of its peers.

Pound (GBP) Wavers amid Lack of Data

The Pound (GBP) faced headwinds on Monday amid a lack of fresh UK releases.

With data in short supply, dovish commentary from Bank of England (BoE) policymakers continued to weigh heavily on Sterling, as ramped up interest rate cut speculations deterred investor interest in the Pound.

Despite some better-than-forecast releases last week, including a warmer-than-forecast batch of inflation data, suggestion from senior BoE policymakers in recent days has prevented GBP from gaining ground against its major rivals.

Most recently BoE Governor Dave Ramsden affirmed that UK inflation is rapidly approaching the central bank’s 2% target rate, reinforcing BoE Governor Andrew Bailey’s assertions from a few days prior.

During a speech at the Peterson Institute of International Economics in Washington on Friday, Ramsden said: ‘Given we know the level of the Ofgem price cap for April and also taking account of the freezing of fuel duties in the March Budget, then other things equal we can be confident headline CPI inflation will fall sharply in April, to close to the 2% target.’

Further suggestion that monetary unwinding lies around the corner saw markets pulling their interest rate cut bets forwards, sinking GBP against its major rivals. Amid a data-light session, the dovish tilt from BoE rate-setters weighed on GBP exchange rates.

Pound Euro Exchange Rate Forecast: PMIs in Focus

Coming up, he UK’s latest preliminary PMIs are set for release on Tuesday. Following an upward revision to March’s manufacturing PMI, the index printed above 50, placing the manufacturing sector in expansion territory for the first time since July 2022. Meanwhile, the services index is due to marginally dip to 53, from 53.1 in March.

Should the data print as forecast, readings above 50 in April could lift Sterling against its peers amid signs of continually strong economic output.

The Eurozone’s preliminary latest PMIs are also due out on Tuesday. Services is forecast to edge higher to 51.8 in April, up from the previous month’s 51.5. In addition to this, the manufacturing sector is due to have contracted less rapidly than in previous months, rising to 46.5 from last month’s 46.1. Signs of increased activity this month may offer EUR some mild support. However, confirmation that the manufacturing sector continues to struggle may limit EUR’s upside potential.

Also due on Tuesday is a speech from BoE Chief Economist Huw Pill. Should Pill echo the central bank’s recently dovish rhetoric, GBP’s potential gains could be limited.