Pound Euro (GBP/EUR) Exchange Rate Rangebound after BoE Forecasts 13% Inflation

Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly

(Updated 16:38 05/08/22)

The Pound Euro (GBP/EUR) exchange rate remained rangebound today amid a lack of significant data for either currency. Major losses for the currency may have been prevented by strong US employment data that potentially sapped demand for the Euro (EUR).

Concerns that UK households and businesses could see little support amid soaring costs may have capped gains for GBP/EUR, however. Speaking earlier today, Confederate of British Industry (CBI) director general Tony Danker stated that the UK ‘cannot wait until September 5’ as reports indicated that the UK government may wait until a new PM is chosen before providing additional support.

At time of writing the GBP/EUR exchange rate is at around €1.1863, close to unchanged from this morning’s opening figures.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways amid Poor UK Outlook

The Pound Euro (GBP/EUR) exchange rate is trading within a narrow range today. Aftershocks from Thursday’s dour outlook from the Bank of England (BoE) are likely capping gains for the currency pair. Eurozone recession fears may be preventing any drastic losses for GBP/EUR, however.

At time of writing the GBP/EUR exchange rate is at around €1.1879, virtually unchanged from this morning’s opening figures.

Pound (GBP) Slips amid Possibility of Fourth Quarter Recession

The Pound is remaining subdued today after the Bank of England’s interest rate hike on Thursday. Sterling is currently ticking down against its rivals amid a poor outlook for the UK’s economy.

The BoE rose interest rates by 0.5% on Thursday in response to soaring inflation. The impact of the rate hike was minimal however as markets had largely priced in the move.

The central bank also issued fresh gloomy forecasts for the UK’s economy which are likely continuing to weigh on Sterling today. The BoE predicted that inflation would hit 13% by the end of the year. The central bank also forecast a fourth quarter recession for the UK.

BoE Governor Andrew Bailey came under repeated criticism today for not acting quick to enough to prevent the UK’s downturn.

On the other hand, the possibility of further interest rate hikes from the BoE could underpin the Pound today.

Amarjot Sidhu, economist at BNP Paribas Markets 360, said:

‘In the short-term, the BoE is not done fighting inflation though, and we still see three more 25bp hikes this year.’

Euro (EUR) Trends Lower as Gas Shortages Continue to Harm Growth Prospects

The Euro (EUR) is edging lower against many of its peers today. An unexpected rise to German industrial production in June may be preventing major losses for the single currency, however.

The trading bloc’s largest member saw industrial output rise in June despite supply chain issues and higher energy prices.

Fears of a possible Eurozone recession may be behind the dip in EUR today. Poor data releases from the Eurozone’s retail and manufacturing sectors have likely caused slowdown concerns to weigh on the currency.

The possibility of an energy shortage across Europe this winter may also be causing losses for the Euro today. The deadlock over the Nord Stream 1 pipeline has continued to impact the Eurozone’s outlook this week.

Russian gas supplier Gazprom has continued to limit the flow of supplies through the Nord Stream 1 pipeline to a fifth of its original capacity. Gazprom has repeatedly insisted that the restrictions have arisen from a poorly functioning turbines in the pipeline. EU officials have stated that the cut to supplies is actually in response to Western sanctions following the country’s invasion of Ukraine.

GBP/EUR Exchange Rate Forecast: Will GDP Figures Fuel Recession Fears?

Looking to the coming week for the Pound, retail sales figures on Tuesday could pull the currency lower if the sector continues to struggle.

Friday’s GDP figures could also see losses for Sterling if they print as forecast. June’s growth rates are set to fall which may add to the BoE’s warnings of a fourth quarter recession.

For the Euro, the final reading of Germany’s rate of inflation for July could bolster the single currency if the figures rise as forecast. The positive reading could increase bets on further interest rate hikes from the European Central Bank (ECB).

On the other hand, a predicted fall to Eurozone industrial production could pull EUR lower if figures print as expected on Friday.

Gareth Monk

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