Pound Euro (GBP/EUR) Exchange Rate Extends Uptrend as Economic Outlook Worsens

Pound Euro Exchange Rate Approaches 13-Day High

(Updated 15:45, 26/07/2022) The Pound Euro (GBP/EUR) exchange rate is continuing to trend up this afternoon as the outlook for the global economy darkens and gas prices rise on Russian supply fears.

The International Monetary Fund (IMF) warned in its latest guidance that growth is stalling in the world’s three largest economies: the USA, China and the Euro area. The Fund cut its growth forecast for this year to 3.2% and for next year to just 2.9%.

The news weighed upon EUR sentiment, which already faced downside relating to gas supply concerns. IMF economic counsellor Pierre-Olivier Gourinchas commented:

‘Many of the downside risks flagged in our April World Economic Outlook have begun to materialize. Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions.’

Original article continues below:

GBP/EUR Exchange Rate Trends Up on Better-Than-Expected UK Data

The Pound Euro (GBP/EUR) exchange rate is inching higher so far today as UK CBI data exceeds expectations. Elsewhere, risk sentiment wavers on fears of a recession and Russia’s Gazprom has announced it will slow gas supplies to Europe, exerting Euro (EUR) headwinds.

At the time of writing, GBP/EUR is trading at €1.1816, up 0.2% from today’s opening levels.

Pound (GBP) Trims Losses as CBI Release Exceeds Forecast

While dipping against the majority of its peers, the Pound (GBP) is rising against the Euro this morning. Better-than-expected CBI data caps losses for Sterling, while EUR headwinds further support GBP/EUR.

The Confederation of British Industry (CBI) has published mixed data this week, with yesterday’s industrial trends orders missing forecasts as business optimism fell by less than expected. Today, the UK’s distributive trades retail sales balance printed at -4 rather than -9 as predicted.

Investors have interpreted the release with varying degrees of optimism, as sales volumes continued to fall on account of the cost-of-living crisis. Expectations for August dropped to -14: the weakest reading since March 2021.

CBI economist Martin Sartorius comments:

‘Retail activity continues to take a hit as consumers struggle to cope with the effects of the cost-of-living crisis.

For wholesalers, high inflation and weakening economic momentum has meant that sales volumes have now fallen following a solid period of growth.’

Nevertheless, retailers reported that their stock levels relative to expected demand were the highest since July 2020. This can be interpreted positively, as it suggests that supply chain pressures are easing.

Euro (EUR) Weakens on Gas Supply Concerns

The Euro is facing multiple headwinds this morning as Russia has said it will make cuts to its European gas exports from Wednesday. Meanwhile, the International Monetary Fund is expected to downgrade its global growth forecasts, exerting likely risk-off downside.

Ukrainian President Volodymyr Zelenskyy has criticised Moscow of waging a ‘gas war’ as the Russian state-controlled firm Gazprom announced it will cut gas deliveries via the Nord Stream pipeline due to ‘the technical condition of the engine’.

The German economy ministry said in a statement yesterday that ‘according to [their] information, there [was] no technical reason for a reduction in deliveries’;

‘We are monitoring the situation very closely in close exchange with the federal network agency and the gas crisis team,’ added the ministry.

Russia’s move to withdraw gas supplies has been labelled as ‘gas blackmail’, in response to which Zelenskyy insists the EU’s eighth sanctions package out to be ‘significantly stronger’.

Elsewhere, the executive board of the International Monetary Fund (IMF) have been discussing policies that may help Germany’s worsening economic outlook. Growth is now forecast to slow to 1.2% in 2022, with supply bottlenecks persisting into next year.

Later today, it is expected that the IMF will downgrade its global growth forecasts for 2022 and 2023.

GBP/EUR Exchange Rate Forecast: German Data to Affect Trading?

Looking ahead, a lack of data for the remainder of today’s session leaves the Pound Euro exchange rate to trade on external factors. If Russian gas cuts remain in the headlines, EUR will most likely be subdued for the near-term.

Into tomorrow, German Gfk data may influence GBP/EUR. If consumer confidence has fallen further than expected according to August’s release, the single currency could face further losses against the Pound and its other peers.

Olivia Evershed

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