Pound Euro (GBP/EUR) Exchange Rate Retreats from 18-Day High
(Updated 15:20, 5/7/22) The Pound Euro (GBP/EUR) exchange rate eased off its 18-day high today after the Bank of England (BoE) released its latest Financial Stability Report.
Our latest Financial Stability Report sets out what we are doing to make sure the UK’s financial system stays strong. https://t.co/HrpZV9ufUm #FinancialStabilityReport pic.twitter.com/4M8Lb2IHhQ
— Bank of England (@bankofengland) July 5, 2022
The report painted a bleak picture. It highlighted that economic conditions in the UK have ‘deteriorated materially’ and argued that a number of external risks, including from the US, Eurozone and Chinese economies, threaten financial stability in the UK.
The at-a-glance summary of the report reads:
‘Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine.
‘Like other central banks around the world, we have increased interest rates to help slow down price increases. Markets have been volatile and financing conditions have tightened.
‘These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.’
Following the publication of this report, GBP/EUR fell sharply from the 18-day high hit earlier. However, the Pound Euro pair remains up on the day. At the time of writing, the GBP/EUR exchange rate is trading at €1.165, up around 0.3% from today’s opening rate of €1.161.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Soars on Strong UK PMI and EUR Weakness
The Pound Euro (GBP/EUR) exchange rate surged higher at the start of today’s trade as a sharp rise in the US Dollar (USD) pressured the Euro (EUR) due to the currencies’ negative correlation. Meanwhile, the UK’s final services PMI beat preliminary estimates, thereby supporting the Pound (GBP).
At the time of writing, the Pound Euro pair is trading at an 18-day high just shy of €1.17. This is up 0.76% from today’s opening level.
Pound (GBP) Enjoys Upwardly Revised PMI
The Pound jumped against a plummeting Euro this morning, despite slipping against its other peers.
GBP investors remain concerned about the state of the UK economy. Sainsbury’s latest results revealed a steep drop in sales, with the company’s CEO saying that the income crunch afflicting the country will ‘only intensify’.
However, an upward revision to the UK’s final services PMI is providing Pound Sterling with some support. The score rose from 53.4 in May to 54.3 in June, beating preliminary estimates of 53.4.
Then again, the report came with caveats. New order growth fell to a 16-month low and business expectations were at their weakest level since May 2020. This may limit GBP’s gains somewhat.
Euro (EUR) Plunges as USD Skyrockets
The Euro fell sharply as markets opened this morning due to its negative correlation to the US Dollar.
American markets were closed yesterday for Independence Day, and USD investors have come back to trade with bullish conviction. The US Dollar Index – which measures the value of the Dollar against a basket of foreign currencies – has hit a 20-year high.
This is putting severe pressure on the single currency, as EUR/USD is the most-traded currency pair in the world. Therefore, when investors buy USD they tend to sell EUR.
In addition, the Eurozone’s final PMIs confirmed a sharp slowdown in business activity.
Growth across the #eurozone slowed to a 16-month low in June, as the #PMI fell sharply to 52.0 (May: 54.8). Services activity increased at a weaker rate, whilst goods production fell for the first time in 2 years. Read more: https://t.co/9B4EZwjQse pic.twitter.com/1quJjjlm0q
— S&P Global PMI™ (@SPGlobalPMI) July 5, 2022
Chris Williamson, Chief Business Economist at S&P Global (the company which conducted the survey), commented:
‘The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis.
‘Household spending on non-essential goods and services has come under particular pressure due to soaring prices but business spending and investment is also waning in response to the gloomier outlook and tightening financial conditions.’
Pound Euro Exchange Rate Forecast: BoE Report to Pare GBP’s Gains?
With the Euro under such overwhelming pressure, GBP/EUR looks set to hold strong. However, the currency pair may trim its gains.
Movements in the US Dollar may drive the Euro today. If the ‘Greenback’ enters overbought conditions, a market correction may help EUR regain some lost ground, although a significant rebound is unlikely.
For the Pound, attention now turns to the latest communications from the Bank of England (BoE).
The bank’s Financial Stability Report is due out later this morning. With the UK economy facing so many headwinds, any concerns about the resilience of the UK’s financial system could weigh on Sterling. BoE Governor Andrew Bailey will hold a press conference following the report, and any comments could also cause movement.