Pound Euro Exchange Rate Approaches 10-day Low After BoE Bailey Comments
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The Pound Euro (GBP/EUR) exchange rate traded flatly on Thursday, as markets analysed dovish comments from Bank of England (BoE) Governor Andrew Bailey.
At the time of writing, GBP/EUR traded at around €1.1687, showing little movement from Thursday’s opening levels.
Pound (GBP) Struggles following Dovish BoE Comments
The Pound (GBP) struggled to find its footing on Thursday, as a lack of impactful macroeconomic data releases kept the focus on dovish remarks from the Bank of England.
Following the latest UK inflation data, Bank of England Governor Andrew Bailey asserted that it may have been a momentary blip in inflation’s downward trajectory, and explained that April may bring further cooldowns in inflation.
Governor Bailey stated: ‘We are pretty much on track with where we thought we would be – a bit under in February and a bit over in the latest figures. Next month will see quite a strong drop. It looks like we are getting a loosening of the labour market.’
This prompted investors to consider current expectations of interest rate cuts from the BoE. Due to Wednesday’s sticky inflation print, markets had begun to expect a single cut from the central bank in 2024.
However, the dovish commentary served to reframe this expectation, with investors further speculating on a June interest rate cut, which pressured Sterling.
Euro (EUR) Muted by Dovish ECB Remarks
The Euro (EUR) traded in narrow boundaries during Thursday’s European session, following dovish comments from the European Central Bank (ECB).
On the back of the ECB’s recent interest rate hold, senior policymakers have taken a more dovish stance and have directly commented on the likelihood of interest rate cuts in the coming months.
This was furthered on Thursday by comments from European Central Bank Vice President Luis de Guindos, who further reinforced speculation of an interest rate cut in June.
He commented that: ‘I think that we have been crystal clear: if things continue as they have been evolving lately, in June we’ll be ready to reduce the restriction of our monetary policy stance. If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.’
Furthermore, a broadly upbeat market mood applied additional pressure to the common currency due to its safer nature.
Pound Euro Exchange Rate Forecast: UK Retail Sales in Focus
Looking ahead for the Pound, the core catalyst of movement is likely to be the latest UK retail sales data, due for publication on Friday.
Economists have forecast that sales increased by 0.3% in March, which would mark a clear improvement from February’s flat 0% reading. As this could indicate that consumer spending remains healthy in the UK despite elevated interest rates, it could lift the Pound against its peers.
This is then followed by speeches from key Bank of England figures. BoE Deputy Governor Sarah Breeden is due to give remarks, as is policymaker Dave Ramsden. If they echo BoE Governor Andrew Bailey’s recent dovish remarks, the Pound could struggle to attract support from investors.
For the Euro, meanwhile, impactful data releases are few and far between through to the end of the week’s session. Because of this, the common currency could struggle to find its footing against its peers.
Furthermore, the lack of other releases may shift investor attention to the latest German PPI data, due to print on Friday. PPI in March is forecast to print at 0%, which could underpin EUR by suggesting that inflationary pressures could remain persistent.
Elsewhere, risk appetite is likely to play a role in shaping the pairing. As a safer currency, if risk appetite remains elevated, the Euro may weaken against the increasingly risk sensitive Pound.
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