Pound Euro Exchange Rate Rises amid Eurozone Stagflation Fears

Pound Euro (GBP/EUR) Exchange Rate Trades Higher as Eurozone Growth Slows

(Updated 16:20, 29/4/22) The Pound Euro (GBP/EUR) exchange rate headed higher today as slowing growth and rising inflation stoke stagflation fears in the Eurozone.

Quarter on quarter, economic growth slowed in the Eurozone through the first three months of this year. The bloc’s latest GDP growth rate printed at 0.2%, down from 0.3% the previous quarter and below forecasts of 0.3%.

Within the bloc, France’s economy stalled and Italy’s shrank, though Germany rebounded from its contraction in Q4 of 2021.

Meanwhile, headline inflation in the Eurozone edged up to 7.5%, as expected. However, unexpectedly, core inflation beat forecasts, rising from 2.9% to 3.5%. This suggests that inflationary pressures are broadening, thereby placing more pressure on the European Central Bank (ECB) to tighten policy.

Rather than boosting the Euro (EUR), however, the latest data saw the single currency dip. The combination of slowing growth and rising inflation worried EUR investors.

GBP/EUR ended the European session on €1.19, up overall after a volatile week.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rangebound as Data Meets Expectations 

The Pound Euro (GBP/EUR) exchange rate wavered this morning as an upbeat mood among European investors gave some support to both currencies. 

Meanwhile, domestic economic concerns cap gains on both sides, and the Eurozone’s flash inflation rate came in as expected, causing limited movement. 

Pound (GBP) Steady amid Risk-On Mood 

The Pound (GBP) edged higher against many of its peers this morning as a positive mood in European markets lifted the UK currency. However, this positive sentiment is also lifting the Euro (EUR), causing GBP/EUR to waver. 

Concerns about the UK economy may be hampering Sterling’s upside. After yesterday’s worrying report from the Insolvency Service, which showed that company insolvencies are at a ten-year high, insolvency firm Begbies Traynor today said that there is worse to come. 

Worries over the impact that rising costs are having on UK firms and households have hurt Sterling in recent weeks. Markets have also pared back Bank of England (BoE) rate hike bets as they foresee a more cautious approach from the UK central bank. This could be maintaining some pressure on the Pound today. 

Euro (EUR) Muted despite High-Impact Data 

Meanwhile, the Euro is inching up against some of its peers, although it’s stuck in a narrow range with GBP. 

The latest high-impact data from the Eurozone has had little effect so far. GDP growth in the block improved year on year, printing as forecast. Quarter on quarter, however, GDP growth slowed from 0.3% to 0.2%, below predictions of 0.3%. 

Meanwhile, the Eurozone CPI met expectations. Inflation in the bloc edged up to 7.5% in April, 0.1 percentage point above March’s figure. However, core inflation exceeded forecasts, suggesting that price pressures are broadening. 

As the results are generally as economists had expected, there has been little movement in the Euro so far. 

EUR bulls may be disappointed that Eurozone inflation didn’t print higher, as that would have prompted more European Central Bank (ECB) rate rise bets – although the rise in core inflation does lend support to those favouring a hike. 

However, the unexpected slowdown in quarterly growth makes the ECB decision trickier. The bank needs to balance the risks of rising inflation against a slowing economy. This uncertainty may be part of what’s keeping EUR in a narrow range. 

Pound Euro Exchange Rate Forecast: More Movement as Markets Digest Data? 

As the day progresses, we could see the Pound Euro pair begin to shift as markets digest the latest data. If the increase in core inflation translates to rising ECB rate hike bets then the single currency could climb. 

Any news from the Ukraine crisis could also influence GBP/EUR. Tensions have continued to rise in recent days as Moscow’s invasion grinds on. If there are any significant negative developments, this could hurt EUR. 

Samuel Birnie

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