STORY LINK Pound Euro Exchange Rate Wobbles amid Cooling German PPI and Risk Aversion
The Pound Euro (GBP/EUR) exchange rate wobbled on Monday morning, amid softer German PPI figures and a risk-averse market mood.
At the time of writing, GBP/EUR traded at €1.2000, having wobbled in a narrow range since the week’s trade began.
Pound (GBP) Muted as Market Mood Sours
The Pound (GBP) began the week on the back foot, nudged lower by a cautious market sentiment that weighed on the increasingly risk-sensitive currency.
Investors’ wariness was fuelled by the worsening crisis in the Middle East, following developments over the weekend. Israeli Prime Minister Benjamin Netanyahu pledged to respond after an alleged assassination attempt by Hezbollah, while Israel carried out a barrage of airstrikes on Lebanon, targeting densely populated areas in and around Beirut.
Additionally, Israel has yet to respond to Iran’s earlier attack this month, with markets fearful that a forceful retaliatory strike could escalate the conflict further.
As the Middle East conflict spreads, markets were increasingly nervous on Monday.
Euro (EUR) Limited by Weaker German PPI
Despite its safe-haven status, the Euro (EUR) struggled to gain ground against the riskier Pound on Monday. This was due to a weaker-than-forecast German producer price index.
The latest PPI data revealed that German producer prices fell more sharply than anticipated in September, with a month-on-month decline of 0.5%. Given that PPI trends often foreshadow consumer inflation, this reading suggested that disinflationary pressures might be building in the Eurozone’s largest economy.
Coming on the heels of the European Central Bank’s (ECB) recent interest rate cut, Monday’s underwhelming German PPI data fuelled speculation about further rate reductions by the ECB.
GBP/EUR Exchange Rate Forecast: UK Borrowing Figures to Spark Budget Anxiety?
On Tuesday, the UK releases its latest public sector borrowing figures, which could impact the Pound’s value ahead of the impending Autumn Budget.
The Pound has been under pressure lately due to worries about the country’s fiscal health, with the government cautioning about a ‘painful’ budget that could include tax increases and spending reductions. Should Tuesday’s borrowing figures fuel these anxieties, the Pound is likely to falter.
Across the Channel, the Euro may also encounter turbulence on Tuesday as European Central Bank President Christine Lagarde is scheduled to give two speeches. Following the ECB’s recent rate cut, any hints that another rate reduction could occur before year-end may put pressure on the Euro.
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TAGS: Pound Euro Forecasts
