The GBP/EUR Rate's Frustrating Grind Higher

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While Pound Sterling has made substantive upside progress against the Dollar of late, against the Euro progress is far slower with a clear break of the 1.1450 level set to remain elusive.

Indeed, Pound to Euro exchange rate (GBP/EUR) rallies continue to be frustrated by selling pressure that ultimately tends to dump the pair back into a well-trodden range.

GBP/EUR spiked to 1.1455 on Tuesday, March 05, but was ultimately repulsed to close the day back at 1.1409 in price action that suggests any upside progress will be frustratingly slow for euro buyers.

"The pound will struggle vs Euro," says Skylar Montgomery Koning, Senior Global Macro Strategist at TS Lombard.

A tough nut to crack: GBP/EUR invites hefty selling interest in the 1.1450 region. (Consider setting a free FX rate alert here to better time your payment requirements.)

Koning says the Pound can continue to outperform the Dollar, but the Euro should remain supported by rising yields in the Eurozone.

"Short-term interest rate (STIR) pricing is coming around to this view and supporting European yields. Rate differentials moved strongly in favour of Euro," she says.

Furthermore, her reading of UK economic fundamentals suggests it is too soon to turn outright bullish on Sterling.

GBP/EUR has nevertheless edged higher for five days in succession and has risen in each of the past four months.

Yet, monthly gains are incredibly small and indecisive, suggesting investors are seeing the same upside forces at work in both the Euro and Pound.

To be sure, both currencies have benefited against the Dollar and other majors as fears of regional gas shortage for the just-ended winter proved unfounded.

Gas prices have instead fallen sharply and are at levels seen prior to Russia's invasion of Ukraine. This bodes well for economic growth in both the Eurozone and UK.

This is reflected in the most recent run of PMI surveys that showed the respective economies were in growth territory for both February and March.

It is therefore difficult to pick a winner, particularly given both the Bank of England and European Central Bank could be poised to hike interest rates again in May.

The relative outperformance of the Euro and Pound is reflected in the rise of GBP/USD and EUR/USD as the Dollar struggles amidst mounting recessionary fears linked to the recent banking U.S. crisis.

GBP/USD outperformance is matched by EUR/USD outperformance, ensuring a clear move in the GBP/EUR cross remains elusive.

The immediate technical picture in GBP/EUR has nevertheless turned more supportive over March and further gains can therefore be seen over the coming days.

But a break to the upside of the well-entrenched 2023 range still remains a difficult objective for Sterling bulls to deliver and could well depend on the nature of UK labour and inflation data due mid-month.