Pound Euro Exchange Rate Trades Narrowly Amidst Volatile Trading Conditions
The Pound Euro (GBP/EUR) exchange rate has ticked up, though encountered some downside on UK inflationary concerns. The currencies are now trading in a narrow range, as fears of a recession weigh upon both economies.
At the time of writing, GBP/EUR is trading at €1.1806, up 0.2% from today’s opening levels.
Pound (GBP) Faces Inflation-related Headwinds
The Pound (GBP) is trading in a mixed range against its peers this morning as investors digest the implications of this week’s eye-wateringly high inflation release. The UK’s latest CPI, along with a surprise contraction of the economy in March, is fuelling fears of stagflation.
Moreover, rising wages seem inevitable given the cost-of-living-crisis and external pressure from lobbying groups. General Secretary of the Unite Group, Sharon Graham, scorned the Bank of England (BoE)’s advice to show restraint when considering salary hikes, saying:
‘If Andrew Bailey wants to lecture anyone about belt-tightening, he should direct his attention to the CEOs of the UK’s top 100 companies,’ said Graham; ‘[they] have seen their wages swell by an average of 34 per cent to an astonishing £4.1 million a year.’
Nevertheless, rising wages threaten to further exacerbate inflationary pressures and hurt consumer spending, forcing GBP investors to scale back rate hike bets.
Capping Sterling losses somewhat is this morning’s report from the Confederation of British Industry (CBI). May’s industrial trends orders rose to 26, matching previous records from March and November and above forecasts of 17.
Optimism is limited, however, as Anna Leach, the CBI’s deputy chief economist notes that ‘cost pressures remain acute’ and ‘sentiment among manufacturers has fallen in recent months.’
Euro (EUR) Slumps as Stock Markets Plummet
The Euro (EUR) is subdued so far today as European stock markets plummet, highlighting growing fears of a recession across the bloc.
Although Euro area construction data printed positively this morning, revealing a 3.3% increase in output year-on-year to March 2022, investors were unable to shrug off forecasts of reduced spending amidst widespread inflationary pressures.
Consumer goods and services firms, energy companies, banks and industrial stocks are worst-hit; food and beverage company stocks dropped 2.5% to a two-month low on concerns that cash-strapped consumers will be forced to cut back.
According to Susannah Streeter, senior investment and markets analyst at Hargreaves Landsdown, disappointing results from retailers in the US sparked panic initially:
‘The slide was sparked by the US retail giant Target warning that customers were already buying fewer high ticket items like furniture and electronics, with higher fuel prices and supply chain costs also eating into margins… the worry is that Target’s pain is a precursor for yet more struggles to come for retailers.’
Later today, the European Central Bank (ECB) will reveal its monetary policy meeting accounts, potentially lending the single currency some support. ECB rhetoric has been slightly more hawkish recently, and markets are now pricing in four ECB hikes into year-end.
Pound Euro Exchange Rate Forecast: Growth Worries to Inspire Risk-Off Mood?
Looking ahead, ongoing reports of tumbling stocks and weakening confidence suggest that a risk-off mood is likely to overthrow positive tailwinds inspired by today’s data releases.
Lori Calvasina, the head of US equity strategy at RBC Capital Markets, told Bloomberg TV that they are pricing in a growth scare due to uncertainty in the market.
In response, both the Pound and the Euro may succumb to downside – however, the ECB’s meeting accounts later today could help to mitigate headwinds for the single currency.