Pound Euro Exchange Rate Softens Despite Eurozone Teetering on Edge of Recession

Pound Euro Exchange Rate Slips amid Mixed Eurozone Data

The Pound Euro (GBP/EUR) exchange rate is weakening as soaring Eurozone inflation is offset by better-than-expected growth data in the Euro area.

At time of writing the GBP/EUR exchange rate is trading around ¢1.1913, a 0.25% drop from this morning.

Euro (EUR) Strengthens amid Encouraging Growth Data

The Euro is enjoying moderate tailwinds today as the market reacts to a flurry of crucial data, with higher-than-expected inflation saved by encouraging growth figures.

Inflation in the Euro area accelerated to a new record high of 8.9% in July, against an expected 8.6%. Mounting energy security fears and soaring food costs bolstered the reading as consumer prices edged up.

However, stronger than expected economic growth limited any further losses as the Eurozone economy expanded by 0.7%, versus an expected 0.2%. The reading is the strongest performance in three quarters. Elsewhere, France registered back-to-back growth and avoided recession as strong exports offset weaker domestic demand. French GDP increased by 0.5% in Q2, posting two quarters of growth.

Meanwhile, capping any further gains is that the Eurozone’s largest economy, Germany, suffered a stagnating economy in the second quarter. The Ukraine crisis, Covid pressures and supply chain issues further compound fears of an imminent recession.

Pound (GBP) Under Pressure as Social Unrest Grows

The Pound (GBP) is failing to find demand today as growing industrial action threatens to disrupt the country as inflationary pressures build.

BT and Openreach have joined the ‘summer of discontent’ and commenced its first strike in 35 years. Following on from yesterday’s announcement that the UK’s largest container dock confirmed industrial action, social unrest continues to weigh on both the economy and the Pound. Felixstowe dock workers voted in favour of a strike after rejecting a 5% pay rise, and plan to stage walk outs in August.

Further weighing on the Pound is the release of consumer credit, which jumped higher than expected. Borrowing figures soaring £1.7Bn in the month of June, far surpassing expectations of a £1Bn increase. Consumer borrowing soared at the fastest rate in three years as households continue to struggle with living costs.

Pound Euro Forecast: Hawkish BoE to Boost the Pound?

Looking ahead to the rest of the session, with no further data, the Pound Euro exchange rate will continue to trade erratically as markets digest the economic data from the Eurozone.

Elsewhere, the BoE interest rate decision will be the main focus of next week’s session as investors expect a 50bps hike. With inflationary pressures spiralling out of control, the central bank is hoping to rein in inflation without triggering a recession.

Danny Tingle

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