The Pound Sterling Euro (GBP/EUR) exchange rate traded erratically as consumer confidence in Germany slid to the lowest level since May.
At time of writing the GBP/EUR exchange rate traded at around €1.1636, relatively unchanged from Tuesday’s opening levels.
Euro (EUR) Exchange Rates Undermined by Flagging German Economy
The Euro (EUR) traded erratically on Tuesday in the wake of the latest GfK consumer confidence in Germany. Against expectations of a modest improvement, sentiment in Europe’s largest economy slipped to a fresh four-month low.
Marking the lowest level since May, persistently high inflationary pressures and soaring borrowing costs continue to weigh on consumer confidence. Rolf Bürkl, GfK Consumer Expert, commented on the souring mood surrounding the German economy:
‘The consumer sentiment is not showing a clear trend and is at a very low level overall. The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more.’
Elsewhere, continued speculation around the European Central Bank’s (ECB) monetary policy could also be preventing any gains for the Euro. With economists now expecting the central bank to halt its hiking cycle sooner than later, the Euro slipped. Against the backdrop of rising recession risks, disappointing PMI data pared rate hike bets as business activity slowed further than expected in August.
However, ECB President Christine Lagarde reiterated the central bank’s stance of tackling inflation remaining top priority. Interest rates will have to stay high for as long as necessary in order to rein in sky-high inflation. This gave something EUR investors to cheer about as at least one more 25bps rate hike is in the pipeline before the end of the year.
Pound (GBP) Exchange Rates Subdued amid Economic Woes
Meanwhile, the Pound (GBP) struggled for a clear direction on Tuesday amid a thin trading calendar.
A somewhat improving market mood lent some modest support to the riskier Pound as China announced policy to boost the economy. Bloomberg reported that the People’s Bank of China (PBoC) are considering further rate cuts to kickstart the flagging economy. The report added:
‘An announcement that big state-owned lenders are reducing rates on the majority of the nation’s 38.6 trillion yuan ($5.3 trillion) of outstanding mortgages may come as soon as Tuesday, according to people familiar with the matter. The reductions will only affect loans on first homes, two of the people said.’
Elsewhere, elevated interest rate hike expectations from the Bank of England (BoE) could be keeping Sterling supported. Speaking at the Jackson Hole Symposium in Wyoming, BoE Deputy Governor Ben Broadbent appeared hawkish in his speech.
GBP/EUR Exchange Rate Forecast: Cooling German Inflation to Dent the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with the latest inflation data for Europe’s biggest economy. An expected decline to 6% would hardly fill the ECB with confidence that inflation is on its way down, but mixed with Germany’s stuttering economy, any surprises could slash rate hike bets.
As for the Pound, Wednesday will see the latest consumer credit data from the BoE. Despite predicted to ease from June’s figures, the figure remains historically high amid the cost-of-living crisis. Sterling could slide on persistent economic woes.