Pound Euro (GBP/EUR) Exchange Rate to Extend Losses as UK’s Economic Woes Persist?

Pound Euro Exchange Rate Licks Wounds After Striking Two-Month Low 

The Pound Euro (GBP/EUR) exchange rate is trading just shy of a two-month low this morning, following an aggressive GBP selloff over the past couple of days.

At the time of writing the Pound Euro exchange rate is trading at around €1.1576, virtually unchanged from this morning’s opening rate. 

Pound (GBP) Steady on Upwardly Revised GDP, but Headwinds Remain Present 

The Pound (GBP) is currently holding its ground this morning, following the publication of UK’s finalised GDP figures for the second quarter. 

According to data published by the Office for National Statistics (ONS), the UK economy expanded by a healthy 5.5% in Q1, rebounding from an upwardly revised –1.4% and beating previous estimates for a more modest expansion of 4.8%. 

The stronger-than-expected GDP figures appear to be helping to underpin the Pound Euro exchange rate so far this morning, but Sterling still remains vulnerable to losses as GBP investors remain wary over growth in the last quarter of the year. 

In a speech on Wednesday, Bank of England (BoE) Andrew Bailey warned that the UK’s supply chain crisis and other pressures facing businesses will mean UK GDP won’t recovery to its pre-pandemic levels as soon as previously thought. 

Bailey, said: 

‘I expect us to be back to the pre-pandemic level in the early part of next year, possibly a month or two later than we thought we would be at the start of August. 

‘The big challenge now is how we can get through this period of uneven growth, supply-side bumps and come out of the other side with both a smoother recovery and balance of supply and demand.’ 

Potentially adding to the headwinds facing the UK economy is the potential for a sharp rise in unemployment, as the UK government’s furlough scheme comes to an end today, with almost 1 million workers potentially facing redundancy. 

Euro (EUR) Flat amid European Energy Concerns 

At the same time, the Euro (EUR) looks unable to push its advantage against the Pound (GBP) this morning, as the single currency is also suffering amidst concerns over Europe’s own energy price crisis

Whilst the situation appears to be a little better than in the UK, there are still concerns that the surge in costs could impact economic growth in the Eurozone. 

Also limiting the upside in the Euro is its strong negative correlation with the US Dollar (USD), which has seen it struggle in recent days amidst a bullish run by the ‘Greenback’. 

Pound Euro Exchange Rate Forecast: German Inflation Release in the Spotlight 

Still to come today is the publication of Germany’s consumer price index later this afternoon.  

September’s preliminary CPI figures are forecast to report that domestic inflation soared to 4.2%, up from 3.9% last month. 

Whilst this would the strongest inflation reading since 1993, any resulting upside in the Pound Euro (GBP/EUR) exchange rate could prove limited in the face of the ECB’s reluctance to start tightening its monetary policy.  

Meanwhile, the focus for GBP investors will turn to tomorrow’s manufacturing PMI. Will confirmation that activity in the UK’s factory sector slowed sharply this month send the Pound lower? 

Matthew Andrews

Contact Matthew Andrews