The Pound Euro (GBP/EUR) exchange rate traded narrowly on Tuesday, showing some weakening overall as the currency pairing stabilised following a volatile Easter bank holiday weekend. At the time of writing, GBP/EUR was marginally down at €1.1383 from the morning’s opening levels. The Pound experienced some support on Tuesday, despite a lack of significant UK economic data, amid a cheery market mood. However, Sterling softened against a buoyant Euro.
The latest World Economic Outlook from the International Monetary Fund (IMF) could have been influencing the Pound. While the IMF revised down its estimate for global growth in 2023, it revised up its forecasts for the UK economy. Rather than contracting by 0.6%, the IMF now expects the UK economy to contract by a smaller 0.3%. While this still indicates an economic downturn this year, the more optimistic outlook may have extended the Pound some support. Chancellor of the Exchequer Jeremy Hunt expressed his gratitude for the upgrades.
Meanwhile, the Euro firmed as the single currency enjoyed its negative trading correlation with the weakening US Dollar. The common currency’s gains may have been capped by some mixed Eurozone retail sales data. Sales in the bloc fell by 0.8% in February as forecast, as Eurozone consumers cut back on spending. However, January’s sales growth was revised higher from 0.3% to 0.8%. Expectations that the US Federal Reserve may cut interest rates later this year put pressure on the US Dollar, with Fed policymaker John Williams explicitly stating that if inflation falls rapidly, the Fed will need to lower rates.
Looking ahead, Bank of England (BoE) Governor Andrew Bailey is due to speak on Wednesday afternoon. Recently, hawkish comments from the BoE chief have helped to boost the Pound. If Bailey signals an appetite for more interest rate rises to tame sky-high UK inflation, Sterling could strengthen. The Pound may be somewhat muted, however, ahead of the UK GDP rate on Thursday. Bailey may hint that any future rate decisions will be data-dependent, and the GDP report could play a key role in whether or not the BoE hikes next month.
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