ExchangeRates.org.uk - At the time of writing, GBP/EUR was trading at €1.1845, having bounced off a low of €1.1820. The Pound (GBP) stumbled out of the gate on Monday morning as GBP investors showed concern over the state of the UK government finances and worries about tax rises. The jitters came as Chancellor Rachel Reeves was set to address Parliament on Monday afternoon, followed by a press conference, to outline the government’s fiscal plans. The new Labour government has claimed that its predecessor left a £20bn ‘back hole’ in public finances due to unfunded spending commitments, and Reeves was expected to outline the challenge ahead and unveil her plans to address the situation. This raised fears that Reeves may announce spending cuts and tax rises, which would dash hopes that the Labour government was pursuing a pro-growth agenda. These worries put some pressure on the Pound. However, while the speculation drove some volatility in GBP, Cabinet Officer minister Pat McFadden said that people ‘shouldn’t expect tax announcements today’, which eased investors’ fears somewhat.
Euro (EUR) Exchange Rates Subdued amid Lack of Eurozone Data
Meanwhile, the Euro (EUR) was unable to press the advantage against a struggling Pound on Monday as a lack of Eurozone economic data left the common currency struggling to attract support. EUR investors may have been reluctant to place any aggressive bets on the single currency ahead of high-impact Eurozone data later in the week, including the bloc’s GDP figures for the second quarter and inflation data for July. Furthermore, the Euro’s strong negative correlation with a rising US Dollar (USD) seemed to apply some pressure to the common currency, putting a lid on EUR and limiting its gains against the Pound.
GBP/EUR Exchange Rate Forecast: Eurozone GDP and Inflation to Dent the Euro?
Looking ahead, the Eurozone’s second-quarter GDP growth rate is due out Tuesday afternoon, with the potential to drive significant movement in the common currency. At the time of writing, the consensus forecast is that the Eurozone economy will have expanded 0.2% in the second quarter of 2024, down from 0.3% in the first quarter. If the GDP data prints as expected, it could put modest pressure on the Euro as a slowdown in economic growth could encourage the European Central Bank (ECB) to restart its interest rate cutting cycle. However, such a slight slowdown may not have a significant impact on EUR exchange rates. On Wednesday we could see the Euro face more notable selling pressure as the Eurozone’s latest consumer price index is due out. July’s preliminary CPI figures are expected to report that both headline and core inflation cooled, from 2.5% to 2.4% and from 2.9% to 2.8%, respectively. If we do see evidence that price pressures in the Eurozone are easing, this could also boost bets on an ECB rate cut and undermine EUR. Meanwhile, UK economic data is in short supply until the Bank of England (BoE) interest rate decision on Thursday. The decision is on a knife edge, which could lead to big swings in the Pound later in the week. Until then, GBP movement may be muted as investors await the central bank’s policy announcement.
This content was originally published on ExchangeRates.org.uk
