GBP/EUR recaptures €1.20 amid improving market sentiment

Philip McHugh March 23rd 2022 - 2 minute read

The Pound struck higher again on Tuesday, bolstered by prevailing risk-on mood.

Sterling is mostly rangebound so far this morning, with GBP/EUR flat at €1.2030 and GBP/USD muted at $1.3254. GBP/CAD is subdued at C$1.6663, while GBP/AUD and GBP/NZD hold steady at AU$1.7771 and NZ$1.9056, respectively.

Looking ahead, will another surge in UK inflation leave GBP exchange rates on the back foot ahead of the publication of Chancellor Rishi Sunak’s Spring Budget?

What’s been happening?

The pound enjoyed strong support yesterday, with the increasingly risk-sensitive currency strengthening in response to an improvement in market risk appetite.

The euro, meanwhile, was also able to trade with modest support on Tuesday. This uptick in the single currency came amidst fresh hopes for Ukraine-Russia peace talks, although these gains remained capped amidst signs that the conflict continues to intensify.

At the same time, the US dollar suffered a broadly selloff through the European trading session on Tuesday. Demand for the safe-haven currency was undermined by risk-on flows.

What’s coming up?

Kicking off today’s session, was the publication of the UK’s consumer price index. February’s release revealed UK inflation rocketed up to a new 30-year high of 6.2%.

However with the Bank of England’s (BoE) recently signalling its reluctance to continue hiking interest rates, the hotter-than-expected CPI print is offering little support to the pound this morning.

Also set to influence Sterling sentiment rates will be the publication of Chancellor Rishi Sunak’s Spring Budget. GBP investors will be hoping Sunak will boost public spending to help cushion the impact of the cost-of-living crisis, although most observers predict the Chancellor will opt for a soft touch approach.

The situation in Ukraine is likely to remain a key focus for EUR investors, although the euro could also be driven by the publication of the Eurozone’s latest consumer confidence index. Will another deterioration in consumer morale weigh on the single currency this afternoon?

Meanwhile the focus for USD investors will be on a speech by Federal Reserve Chair Jerome Powell. Should Powell reinforce the Fed’s current hawkish policy outlook, the US dollar could rebound.

Written by
Philip McHugh

Select a topic: