Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Increased BoE Hike Bets

Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly as Eurozone Recession Fears Grow

(Updated 16:30 28/07/22)

The Pound Euro (GBP/EUR) exchange rate continued to trade within a narrow range today. Major losses for the pair were likely limited by further signs of a potential Eurozone recession.

An above-forecast drop to Eurozone economic sentiment for July added to fears of a slowdown in the trading bloc. The cut in Russian gas supplies and soaring inflation saw confidence among consumers and companies fall sharply.

Peter Vanden Houte of ING said:

‘High inflation and the soaring costs of energy are, of course, major headwinds. Unfortunately, the labour market, which had been a big support for consumption also shows signs of weakening.’

Gains for GBP/EUR were likely capped by further signs the UK could be seeing a ‘summer of discontent’. Workers at Felixstowe docks announced today that they would be initiating strike action in August after rejecting a 5% pay offer. The impact of the closure of such a major container shipping port may have prompted fresh uncertainty in the markets.

At time of writing the GBP/EUR exchange rate is at around €1.1932, virtually unchanged from this morning’s opening figures.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rangebound after Hitting 12-Week High

The Pound Euro (GBP/EUR) exchange rate is trading narrowly after climbing to a 12-week high earlier today. The currency pair is likely seeing support from increased bets on further interest rate hikes from the Bank of England (BoE). Increased chances of an energy crisis in the Eurozone may also be helping to bolster GBP/EUR today.

At time of writing the GBP/EUR exchange rate is at around €1.1930, mostly unchanged from this morning’s opening figures.

Pound (GBP) Gains as Investors Bet on Further BoE Rate Hikes

The Pound (GBP) is firming against many of its competitors today. A return of risk appetite may be helping the currency to make gains today. The improvement to risk sentiment comes after US Federal Reserve Chair Jerome Powell signalled that the central bank may begin to pursue a less-aggressive path of policy tightening.

Wednesday’s 0.75% interest rate hike from the Fed may have also increased bets on further action from the BoE. This may in turn be helping to push the Pound higher today. Speaking in weeks prior, BoE Governor Andrew Bailey signalled that a 0.5% rate hike from the central bank was ‘on the table’.

Brexit-related headwinds may weigh on the Pound today, however. A recent survey conducted by the British Chambers of Commerce (BCC) found that around a quarter of firms were seeing a drop in sales due to post-Brexit rule changes.

Euro (EUR) Falls amid Potential Eurozone Energy Crisis

The Euro (EUR) is slipping today amid fears of a potential energy crisis in the Eurozone this winter. Wednesday saw these concerns increase amid reports that Russian energy supplier Gazprom had severely reduced gas flows to Germany.

Germany, the trading bloc’s largest member, accused Russia of enacting a ‘power play’ after gas flows through the Nord Stream 1 pipeline were cut to roughly 20% of its capacity. Gazprom has stated that the reduction is due to a ‘technical condition of the engine’.

There are also concerns that the economic impact of an energy crisis could push the Eurozone into a recession. These worries could be reducing investors bets on further interest rate hikes from the European Central Bank (ECB) today. This in turn could also be contributing to the single currency’s woes.

GBP/EUR Exchange Rate: Will Poor Eurozone Growth Increase Recession Fears?

The Pound has no further significant data this week. The currency could well see its movements dictated by risk appetite and political developments. The impact of ongoing travel disruptions across the country may also weigh on GBP.

For the Euro, a forecast dip to economic sentiment later today could pull the single currency lower. Also today, a predicted drop to Germany’s rate of inflation for July could prompt further losses.

The Euro could see mixed movements on Friday. On the one hand, German unemployment is currently set to tick even higher which could boost bets on further ECB action. High Eurozone inflation could have a similar effect.

On the other hand, a forecast downturn to German and Eurozone inflation in the second quarter could prompt further recession fears and dent confidence in the single currency.

Further signs of an impending Eurozone energy crisis may also cause a slip in the single currency this week.

Gareth Monk

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