GBP/EUR Rebounds Briefly as Markets Digest EU Data
(Updated 17:00, 12/07/2022) The Pound Euro (GBP/EUR) exchange rate rebounded briefly this afternoon as EU headwinds were keenly felt by single currency investors.
Weak economic sentiment data and fears that energy supplies would be cut weighed upon EUR, although Sterling downside was never far from investors’ minds: the Pound fell to a two-year low against the US Dollar (USD) today as experts warned that tax cut pledges from prime ministerial candidates risked ‘stoking inflation and inequality’.
The Guardian reports:
‘The pound has fallen to the lowest level in two years in recent weeks amid growing concern over the strength of the British economy and political instability during an intense squeeze on households and businesses.’
Nevertheless, as the Euro nears parity with the US Dollar, the risks facing Europe’s economy are not to be sniffed at.
Analysts at the Japanese bank Mizuho observe:
‘The euro took a fresh low as fears mount Russia could cut off gas supplies to Europe this winter… This is further stoking recession fears in the bloc and the currency just cannot catch a bid.’
Original article continues below:
Pound Euro Exchange Rate Drops on Sterling Headwinds
The Pound Euro (GBP/EUR) exchange rate is falling today despite worse-than-expected economic sentiment figures from Germany and the wider Euro area. The Pound (GBP) continues to attract downside on risk-off headwinds, as well as dovish Bank of England (BoE) rhetoric and turmoil in British politics.
At the time of writing, GBP/EUR is trading at €1.1787, down 0.5% from today’s opening levels.
Euro (EUR) Trades Mixed despite ZEW Data
The Euro (EUR) is trading in a mixed range against its peers as economic sentiment data weighs upon the currency, while a risk-off mood lends EUR support against perceived-riskier rivals such as the Australian and New Zealand Dollars.
The ZEW indicator of economic sentiment for the Euro area plunged to -53.8 in July 2022 from -28 in the previous month – the lowest reading since December 2011.
Contributing to lower morale were downbeat forecasts for Europe’s economic outlook amid ongoing concerns about the energy crisis, and the European Central Bank (ECB)’s new hawkish stance, which risks inspiring a recession in a bid to bring inflation down.
ZEW President Professor Achim Wambach comments:
‘The experts assess the current economic situation significantly more negatively than in the previous month and have further lowered their already unfavourable forecast for the next six months.’
Nevertheless, risk-off trading due to recession fears and news of fresh lockdowns in China caps Euro losses as the single currency is considered a relatively safe investment. Compared with the Pound, investors are more likely to support EUR in times of uncertainty.
Pound (GBP) Weakens on Poor Retail Report
The Pound faces multiple headwinds today as risk aversion saps support for the currency in favour of perceived-safer assets. Also weighing upon GBP are fears of a recession and political turmoil, alongside a downbeat report this morning from the British Retail Consortium (BRC).
The BRC’s retail sales monitor revealed that UK sales contracted in June 2022, on an annualised basis, for the fourth consecutive month.
‘Sales volumes are falling to a rate not seen since the depths of the pandemic, as inflation continues to bite and households cut back spending,’ said Helen Dickinson, BRC’s chief executive, of the 1.3% contraction.
Dickinson added that consumers are trading down to cheaper brands when buying food and other products, as well as postponing purchases of kitchen appliances and homeware.
As inflationary pressures become ever more apparent, the Bank of England (BoE) are facing criticism for their perceived dovish approach in enacting ‘gradual’ monetary policy tightening. Nevertheless, policymakers argue that this method is necessary to avoid a recession.
Elsewhere, political concerns dent Sterling sentiment as a replacement has yet to be found for former Prime Minister Boris Johnson. Transport secretary Grant Shapps has pulled out of the running, leaving Conservative support divided between Rishi Sunak, Liz Truss and others.
Pound Euro Exchange Rate Forecast: Gov Bailey Speech to Inspire GBP Movement?
Looking ahead, a speech later today from Governor of the Bank of England, Andrew Bailey, may inspire some movement in Sterling exchange rates. If Bailey reiterates the challenges facing the UK’s economy, the Pound may sink further.
Elsewhere, risk sentiment could affect Euro exchange rates: GBP/EUR may climb if market mood improves. Any developments regarding Europe’s gas supply via the Nord Stream 1 pipeline might also influence EUR trading.