The Pound-Euro rate could struggle to extend gains if the ECB stays hawkish, although a cautious Lagarde could trigger a pullback in the Euro.
The Pound to Euro (GBP/EUR) exchange rate traded with modest gains at the start of this week as markets digested John Healey’s first major speech since becoming UK Chancellor.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1647. A slight rise from the start of Monday’s session.
DAILY RECAP:
The Pound (GBP) ticked higher on Monday as Chancellor John Healey outlined the UK government’s plans to revive growth and attract greater private investment.
Healey announced plans to give city regions greater powers to develop local industrial strategies and attract private capital, while also pledging to cut regulatory costs for businesses by 25% by the 2029 election.
The Chancellor also unveiled a £150 million fund for fast-growing firms in northern England, which will provide investments of between £5 million and £15 million through the British Business Bank.
Healey argued that the UK can overcome its current economic challenges by giving regions greater control over investment and reducing barriers to business expansion, with this optimistic tone appearing to resonate with some GBP investors.
The Euro (EUR) found support on Monday after revised Eurozone GDP figures pointed to a stronger-than-expected expansion in the second quarter.
The latest GDP estimate reported the Eurozone economy expanded by 0.6% between April and June, up from 0.4% in preliminary estimates.
However, the resulting upside in the Euro remained limited as the GDP figures came on the heels of Germany’s latest industrial data.
German industrial production fell by 1.1% month on month in July, confounding expectations for a 0.1% increase, suggesting the manufacturing sector’s recent strength may be less resilient than hoped.
Near-Term GBP/EUR Forecast: Markets Await ECB Interest Rate Decision
Looking ahead, movement in the Pound Euro exchange rate may be limited over the next couple of days as investors brace for the European Central Bank’s (ECB) latest interest rate decision.
Markets have already priced in a 25bps rate hike this month, placing the focus on the bank’s policy statement and any accompanying guidance from ECB President Christine Lagarde.
If Lagarde signals that more needs to be done to combat inflation, expectations for further monetary tightening could help propel the Euro higher.
However, amid ongoing geopolitical uncertainty, Lagarde may choose to strike a more cautious tone, which could trigger a sharp correction in the single currency.
Meanwhile, in the absence of any notable UK economic indicators until the very end of the session, Sterling may be left to trade without strong directional bias through the middle of the week.
Our currency coverage draws on live market data, official economic releases and published bank research.
