Pound Euro (GBP/EUR) Exchange Rate Choppy as Markets Assess Economic Risks
The Pound Euro (GBP/EUR) exchange rate fluctuated this morning as economic concerns put both currencies under pressure.
At the time of writing, GBP/EUR is trading at €1.176, marginally down from yesterday’s high of €1.1777.
Pound (GBP) Pressured by Economic Fears
The Pound (GBP) is facing challenges this morning as GBP’s rally fizzles out. Yesterday, Sterling enjoyed some cross-driven strength after the Euro (EUR) tumbled following the European Central Bank (ECB) meeting.
Today, UK economic concerns are once again pressuring the Pound. The latest UK employment data shows that the job market is slowing. Although the pace of employment growth is still strong, it has dropped to the slowest pace since early 2021.
In addition, there are concerns about skills shortages and participation.
Neil Carberry, CEO of the Recruitment and Employment Confederation (REC), who co-published the report, commented:
‘… compared to pre-pandemic, labour supply is still the big issue we have to solve. With over half a million people missing from the jobs market, and demand still growing strongly, this is a big, strategic issue for the UK. Growth is essential to funding public services and paying higher wages sustainably.’
On its own, this data isn’t particularly troubling, but it adds to numerous warning signs that the UK economy is running out of steam.
Meanwhile, Deutsche Bank has revised its forecasts for UK interest rates. The bank now expects the Bank of England (BoE) to lift its Bank Rate to 2.5% rather than 1.75%, entering restrictive territory.
While higher interest rates often boost a respective currency, economists are concerned that hiking too aggressively will push the UK into a recession.
Euro (EUR) Rocky as Recession Risks Loom
Meanwhile, the Euro is still wobbly following yesterday’s ECB announcement.
The ECB indicated that it would hike rates in July and September, with the latter potentially being a 50-bps increase. However, the bank also downgraded its growth forecasts and upgraded its inflation expectations.
Markets grew more concerned about the potential for an economic recession in the Eurozone as growth slows, inflation soars and interest rates rise higher.
Adding to concerns over the Eurozone economy, Bundesbank has halved its 2022 growth forecast for Germany and sharply revised inflation forecasts higher.
Bundesbank now expects GDP in Europe’s largest economy to grow by a meagre 1.9% in 2022, rather than the 4.2% predicted in December. Meanwhile, the bank expects inflation to hit multi-decade highs of 7.1%.
Pound Euro Exchange Rate Forecast: Lagarde Speech in Focus
Looking at the rest of the session, domestic news could drive most movement in the Pound. Despite Boris Johnson winning the vote of no confidence earlier this week, huge political uncertainty remains. Any headlines about Johnson’s weakened position could impact Sterling.
Domestic UK economy news could also affect the Pound. Any more warnings about the country’s bleak outlook could push GBP/EUR lower.
EUR investors, meanwhile, are looking ahead to a speech from ECB President Christine Lagarde this afternoon. If Lagarde sounds concerned about the future of the Eurozone economy, the single currency could slip.