GBP/EUR exchange rate steadies following deep losses in March
The pound drifted lower versus the euro on 4 March, falling into the $1.20 mid-range, as a downbeat market mood weighed on the increasingly risk-sensitive pound and bolstered the safer euro. The single currency also garnered investor attention thanks to its negative correlation with a faltering dollar.
The pound slumped into the €1.19 mid-range the next day following hawkish comments from Bank of England (BoE) policymakers and political progress in Germany. Prospective coalition partners reached a deal to ease the country’s debt brake, potentially freeing up substantial funds that could bolster the embattled German economy – the largest in the Eurozone.
The pound euro rate extended its losses on 6 March after the European Central Bank (ECB) struck a more hawkish tone than expected at its policy announcement. Despite cutting interest rates by 25bps, as expected, the ECB’s forward guidance suggested future cuts could be made at a slower pace.
The pair dipped below the €1.19 level on 10 March amid uncertainty over whether the UK would side with the US or the EU and its allies in the event of a transatlantic trade war.
The pound dropped to €1.183 the following day, marking a month and a half low, after the euro was bolstered by its strong negative trading relationship with a weakening dollar.
The UK currency jumped above €1.19 on 13 March after the EU vowed to retaliate against US trade tariffs, undermining the euro. Optimism surrounding Ukraine ceasefire talks helped to limit the safer single currency’s losses.
Lacklustre UK GDP data for January caused the pound euro exchange rate to sink more than half a percent on 14 March. The figures reported that the domestic economy unexpectedly shrank by 0.1% at the start of the year, missing growth forecasts of 0.1%.
The pound euro rate spiked to a two-week high in the €1.19 mid-range on 20 March, following the BoE’s decision to leave UK interest rates unchanged at 4.5%.
Having risen to within a whisker of the €1.20 benchmark amid a cheery market mood that dented the euro, the pound retreated to the €1.19 mid-range on 26 March. Applying downward pressure was softer inflation and a weaker UK growth forecast.
The pound retraced its losses over the next two days amid ongoing concerns that tariffs could damage the Eurozone economy and encouraging data. UK retail sales for February and GDP for Q4 both beat expectations on 28 March, helping the UK currency to edge above the €1.20 benchmark for the first time since 5 March.
The pound euro exchange rate ended the month at around €1.194
GBPEUR: 3-Month Chart
Looking ahead
In the absence of a BoE monetary policy meeting in April, investors in the pound will closely monitor inflation figures for further signs of cooling. If UK inflation moves closer to the central bank’s 2% target, investors are likely to ramp up rate cut bets for May – a dovish view that could dampen pound sentiment.
Influential data from the UK economy in April: GDP (11 April), ILO Unemployment Rate (15 April), Consumer Price Index (16 April), S&P Global/CIPS Composite PMI (23 April).
Economists expect the ECB to cut interest rates to 2.25% in April if inflation and growth data meet expectations, potentially undermining the euro.