Pound Euro (GBP/EUR) Exchange Rate Recoups Some Losses
(Updated 16:30, 1/7/22) The Pound Euro (GBP/EUR) exchange rate slumped to a 16-day low earlier today amid poor UK economic data and a hotter-than-forecast Eurozone inflation rate reading.
However, Sterling managed to rebound and recoup some losses as the day progressed. This may have in part been due to the Pound (GBP) entering oversold conditions, with markets then correcting.
In addition, a stronger US Dollar (USD) seems to have weighed on the Euro (EUR), due to the currencies’ negative correlation.
GBP/EUR tumbled by three quarters of a cent, down from around €1.16 to €1.1525. At the time of writing, the Pound Euro exchange rate has recovered to trade at around €1.1563.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Slides on Poor UK Data and Strong EA Inflation
The Pound Euro (GBP/EUR) exchange rate slumped this morning as some downbeat UK data weighed on the Pound (GBP).
In addition, inflation in the Euro area beat forecasts to hit a fresh record high. This is boosting European Central Bank (ECB) rate rise bets and thereby supporting the Euro (EUR).
Pound Sterling (GBP) Dips on Poor Data
The Pound headed lower against the Euro this morning as the UK’s economic woes continue.
The latest consumer credit report came in significantly below forecasts, and below the pre-pandemic average. This could suggest that UK consumers are borrowing and therefore spending less as the cost-of-living squeeze tightens.
In addition, the finalised manufacturing PMI came in lower than the flash results. Output growth slowed to a near standstill and new orders shrank for the first time in 17 months. Furthermore, business optimism fell to its lowest level since May 2020, when the UK had just emerged from its first Covid lockdown.
🇬🇧 Growth in the UK’s manufacturing sector slowed in June with the #PMI at a 2-year low of 52.8 (May: 54.6). Weaker economic outlook, the war in Ukraine and raw material shortages led to a reduction in demand. Read more: https://t.co/MxsAa9RScr pic.twitter.com/AVAw3zeLTm
— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022
These gloomy reports add to the glum mood among GBP investors, as the UK economy continues to face headwinds.
Euro (EUR) Surges as Inflation Beats Forecasts
Meanwhile, the Euro is surging higher this morning after Eurozone inflation came in hotter than expected.
Inflation in the Euro area jumped from 8.1% to a fresh record high of 8.6% in June, exceeding forecasts of 8.4%.
Recently, the European Central Bank has signalled a more hawkish approach to monetary policy, which in turn has supported the Euro. Today’s hot inflation data has further fuelled expectations that the ECB will implement multiple rate rises, starting at their next meeting later this month.
Pound Euro Exchange Rate Forecast: Fragmentation Fears to Cap Gains?
As markets digest the latest data, the Pound Euro pair could continue to fall. We may however see a modest rebound in Sterling if it enters oversold conditions.
One factor that could temper EUR’s gains is the growing concern over fragmentation in the Eurozone. Yesterday the ECB unveiled a new tool to tackle the potential instability that raising interest rates could cause, which alleviated concerns somewhat. However, if yield spreads continue diverging across different Eurozone countries, this could cap the single currency’s gains.