- Pound (GBP) is falling after 5days of gains
- UK housing market loses momentum
- Euro (EUR) is rising but is still lower across the week
- Bond yields rise amid rising inflationary worries
The Pound-Euro (GBP/EUR) exchange rate is falling after five days of gains. The pair rose 0.33% in the previous session, settling on Wednesday at €1.1595. It traded between €1.1549 and €1.1601. At 11:30 UTC on Thursday, GBP/EUR trades 0.06% lower at €1.1587.
The pound is pausing for breath after rallying to a five-week high against the euro. Sterling has pushed higher this week against the euro but not against the US dollar, where it is falling for a third straight day as markets worry about rising oil prices and their wider impact on the UK economy.
Yesterday, Prime Minister Keir Starmer said that the planned 5p increase in fuel duty from September may be reviewed, given that prices at the pumps are already rising due to surging oil prices.
Today, data showed that the UK housing market has lost momentum amid fading demand from buyers who are concerned about the implications of the Middle East conflict and the potential increase in mortgage rates as inflationary pressures rise and gilt yields climb to a 6½-month high.
According to the Royal Institution of Chartered Surveyors, a measure of new buyer enquiries fell sharply to a net balance of -26 in February, down from -15 in January. This was the lowest reading since December. It also comes as almost 500 mortgage products have been pulled off the market in the last two days, the highest number since the aftermath of the mini-budget. UK mortgage rates have also topped 5% as lenders price in a higher inflation backdrop.
The euro is modestly higher but still trades sharply lower across the week so far, given Europe’s reliance on imported oil, making it vulnerable to volatility in oil prices.
In a similar picture to the UK, bond yields across the eurozone have risen, with the German bond yield climbing to its highest level since October 2023 as investors price in the inflationary impact of elevated oil prices.
The market is now expecting the ECB to hike rates in July and is also pricing in an 85% probability of a further rate hike by the end of the year.
However, the impact on growth is also expected to be significant, which could keep demand for the euro subdued.
