ExchangeRates.org.uk - The Pound (GBP) faced modest selling pressure at the start of the week, as a downbeat market mood pressured the risk-sensitive currency. The risk-averse mood came as the crisis in the Middle East continued to deteriorate, following developments over the weekend. Israeli Prime minister Benjamin Netanyahu vowed retaliate for a suspected Hezbollah attempt on his life. In addition, Israel launched a wave of attacks on Lebanon, including strikes on densely populated parts of Beirut and its suburbs. Furthermore, Israel is yet to retaliate for Iran’s attack earlier this month. With the conflict in the Middle East growing wider and more intense, markets are fearful of what the future holds.
Euro (EUR) Undermined by German PPI
Meanwhile, the safer Euro was unable to press the advantage against the risker Pound due to a weaker-than-forecast German producer price index on Monday morning. The latest PPI reading showed that German producer prices declined more than expected in September, with PPI down 0.5% month on month. As PPI often feeds through to consumer inflation, this reading indicated that disinflation in the Eurozone’s largest economy could be gathering pace. Following the previous week’s interest rate cut from the European Central Bank (ECB), Monday’s softer German PPI data added to bets on more cuts from the ECB.
GBP/EUR Exchange Rate Forecast: UK Budget Worries to Dent the Pound?
Looking forward, Tuesday’s session opens with the UK’s latest public sector borrowing figures, which could influence the Pound ahead of the Autumn Budget next week. Concerns about the state of the public purse have dented GBP in recent weeks, as the British government warns of a ‘painful’ budget to come, with tax hikes and spending cuts. If Tuesday’s borrowing figures exacerbate concerns about coming tax rises, expect to see the Pound stumble. Meanwhile, the Euro could face headwinds of its own on Tuesday as ECB President Christine Lagarde is due to deliver two speeches. After the ECB’s rate cut last week, any signals that another drop in interest rates is likely before the year is up could weigh on the common currency.
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