Pound to Euro breaches 1.16 for the first time this year

Pound to Euro exchange rates breached 1.16 yesterday, for the first time since mid-December. Sterling’s rise is being driven by improved economic forecasts for the UK and future interest rate expectations.

A transfer of £100,000 is buying €5000 more vs the low of the year.

UK inflation remains elevated at 8.7% which is much higher than the Bank of England’s target level of 2% and higher than expectations of 8.2%.

The probability of a UK interest rate hike on the 22nd of June is now extremely likely. Another rise in interest rates would support the value of the pound against its major counterparts.

In the eurozone, the mood has soured, mainly due to poor German GDP figures. The expectations for a recession in Germany are now high which is leading to euro weakness against the pound and dollar.

EURGBP is close of 6-month lows and EURUSD is trading close to 3-month lows.

Key inflation data is released from the Eurozone this morning. A fall in inflation would be positive for EU consumers and positive in the long-term for economic activity.

However, a fall could mean the ECB pause interest rate hikes at the next meeting which would likely cause further downward pressure on the euros value.

Global risk appetite has been diminishing over the last couple of weeks over concerns the US would start defaulting on its debt. The US government was forecast to hit their borrowing limit on 5th June.

Yesterday, The House of Representatives approved a deal to allow the government to borrow more money which has eased many concerns. The deal will need to pass the senate later this week to become law.

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