GBP/EUR Exchange Rate Sinks as Markets Fear a UK Recession
(Updated 16:20, 06/03/2022) The Pound Euro (GBP/EUR) exchange rate fell overall through today’s session, as UK living costs mounted and economists expressed fears of a recession.
Following downbeat comments from the Office for Budget Responsibility (OBR), which remarked that ‘living standards are set for a historic fall’, Deutsche Bank’s chief UK economist Sanjay Raja warned that there are signs the economy is slowing.
The bank now predicts that the UK economy will contract by around 0.2% in the April-June quarter before rebounding modestly in Q3 and flatlining by the end of the year as household energy bills ramp up again:
‘We continue to think that recession risks remain on the rise… This is something we will be tracking very closely in the coming months. Consumer confidence data are already consistent with recessionary levels.’
Continuing to dampen trading sentiment for both the Pound and the Euro are geopolitical tensions surrounding the Ukraine conflict.
The UK imposed fresh sanctions on Russia today, banning all new outward investment to Russia and pledging to end all imports of Russian coal and oil by the end of 2022. Nevertheless, news that Russia has received more in EU energy payments since the start of the war than Ukraine has been given in defence spending weighed upon morale.
Original article continues below:
Pound Euro Exchange Rate Wavers as German Data Disappoints
The Pound Euro (GBP/EUR) exchange rate is trading fairly level this morning as German factory orders print lower than expectations. Germany’s construction PMI also missed forecasts; but EUR losses are capped by US Dollar (USD) downside, on account of the currencies’ strong negative correlation.
At the time of writing, GBP/EUR is trading at €1.1993, virtually unchanged from today’s opening levels.
Euro (EUR) Trades Mixed on Uneven US Dollar Strength
The Euro (EUR) is trading in a mixed range today as support for the US Dollar is mixed, inspiring some upside in the single currency; on the other hand, German data missed expectations and tensions in Ukraine remain high.
German factory orders fell by 2.2% in February, much worse than market forecasts of a 0.2% drop. This marks the first fall in four months as supply constraints, soaring energy prices and uncertainty over Russia’s invasion of Ukraine sap foreign demand – and correlates with remarks from industry professionals.
Companies including BMW AG, BASF SE and ThyssenKrupp AG had already warned that their earnings will slip: on Monday, Deutsche Bank AG Chief Executive Officer Christian Sewing said a recession ‘would presumably be inevitable’ if Germany was cut off from deliveries of Russian oil and gas.
Adding to Euro downside is Germany’s construction PMI, which fell to 50.9 in March as opposed to 54.2, as forecast. This indicates the lowest expansion in the construction sector in 3 months.
Elsewhere, tensions between Ukraine and Russia remain high as calculations put the number of child deaths resulting from the conflict around 167, with 279 injured. On a more positive note, Ukraine’s deputy prime minister Iryna Vereshchuk said that eleven humanitarian corridors have been agreed for Wednesday, allowing trapped civilians to flee.
Pound (GBP) Resists Significant Downside despite Cost-of-Living Crisis
The Pound (GBP) has found some support this morning in spite of domestic headwinds and geopolitical tensions.
The UK’s cost-of-living crisis is in focus today as national insurance contributions increase, raising tax on workers and firms; households have also been hit by the biggest monthly jump in motor fuel prices in at least two decades.
According to RAC fuel spokesman Simon Williams:
‘Without question, these figures show in the starkest possible terms just how much fuel prices are contributing to the cost-of-living crisis which will be affecting households up and down the country…
We know that so many drivers depend on their vehicles… so fuel prices must be starting to have an enormously detrimental effect on people’s finances, especially those on lower incomes.’
Unlike European countries such as Germany, however, the UK is less reliant upon Russian fuel imports and so has avoided some of the criticism directed at EU countries for failing to divest.
One online tracker estimates that the EU has paid Russia almost €20bn for energy imports since the invasion of Ukraine began on 24 February, of which around €9.7bn was for gas.
Pound Euro Exchange Rate Forecast: Euro to Climb on Retail Data?
Looking ahead, tomorrow’s data releases from the Euro area are likely to direct currency movement, alongside risk sentiment and other external factors.
German industrial production is expected to have remained unchanged in February, exerting potential EUR headwinds; on the other hand, retail sales in the Euro area are expected to have increased by 0.6%. If sales print as forecast, the Euro could enjoy tailwinds.