- Pound (GBP) falls after three weeks of gains
- The BoE could limit the upside with another rate cut expected
- The Euro (EUR) is rising as investor confidence rises
- ECB’s Schnabel considers a rate hike as the next move
The Pound-Euro (GBP/EUR) exchange rate is falling after losses last week. The pair rose 0.3% in the previous week, settling on Friday at €1.1450. It traded between €1.1359 and €1.1469. At 14:00 UTC, GBP/EUR trades -0.06% at €1.1444.
The pound is inching lower on Monday after three straight weeks of gains as the relief rally following the Chancellor’s budget shows signs of running out of steam.
The Chancellor’s budget was well received by the markets, causing little disruption, resulting in a sigh of relief from investors, sending the pound higher.
However, gains could be limited as attention now turns towards the Bank of England meeting next week and UK GDP figures this Friday. Expectations are for the UK economy to grow 0.1% month on month in October after contracting -0.1% in September.
The growth outlook for the UK is weak across next year after downgrades from the OBR and the IMF.
Meanwhile, the Bank of England is widely expected to cut rates by 25 basis points following a narrow vote at the previous meeting. UK inflation appears to have peaked, easing to 3.6% year on year in November.
The euro is rising on Monday after better-than-expected eurozone investor confidence data. The Sentix index gauging investor morale in the region rose to -6.2 in December, up from -7.4 in November, beating forecasts of -7. The data suggests that the eurozone economy could be at best stabilising.
Germany, however, the largest economy within the eurozone, is still struggling, and the overall index for Germany fell to -22.7 from -20.4, marking the lowest level since April. This suggests that the German economy remains firmly in the grip of recession.
The euro is also supported by hawkish comments by ECB Executive Board member Isabel Schnabel, who said that she was comfortable with the idea that the next move from the ECB could be a rate hike.
