- Pound (GBP) is unchanged after losses last week
- Worries over the impact of surging energy prices hurt the outlook
- Euro (EUR) is unchanged ahead of German CPI data
- Eurozone consumer confidence drops to a 2.5-year low
The Pound-Euro (GBP/EUR) exchange rate is unchanged at the start of the week after declines last week. The pair fell 0.09% in the previous week, settling on Friday at €1.1520. The pair traded between €1.1498 and €1.1590. At 12:30 UTC on Monday, GBP/EUR trades +0.01% at €1.1522.
The pound is little changed against the euro on Monday but has fallen to a three-week low against the US dollar as investors grow increasingly concerned about the impact of the Iran conflict on the UK economy.
So far, sterling has been one of the better-performing G10 currencies since the start of the conflict. However, the outlook remains vulnerable given the UK’s heavy reliance on imported natural gas, persistently high inflation, and already stretched public finances.
The 10-year gilt yield is holding near 4.98% after rising to 5.11% last week — its highest level since 2008. While this points to a more nervous gilt market, the strain remains far less severe than during the market turmoil seen under Liz Truss.
Attention is also beginning to shift towards the May 7 elections, with Keir Starmer’s Labour Party reportedly trailing both Reform UK and the Green Party in some polls.
Recent data has added to concerns. UK business activity slowed to its weakest pace in six months last week, while manufacturing input prices rose at the fastest rate since 1992.
The euro is holding relatively steady as investors digest the latest consumer confidence data and look ahead cautiously to German inflation figures due shortly.
Eurozone consumer confidence deteriorated sharply in March, falling to -16.3 from -12.3 previously — the weakest reading since October 2023. Rising inflation expectations linked to the Middle East conflict are likely contributing to the decline.
Markets expect German CPI to rise 0.9% month-on-month in March, up from 0.2% in February, as the impact of surging energy prices begins to feed into the real economy.
Markets are currently pricing in three ECB rate hikes this year, and a hotter-than-expected German inflation reading could reinforce that view.
Wider eurozone inflation data is due tomorrow.
