The Pound Euro (GBP/EUR) exchange rate rallied through the first half of last week. Before nosediving in response to some bleak economic forecasts from the Bank of England (BoE).
What’s Been Happening: GBP/EUR Exchange Rate Tumbles on BoE Recession Warning
The Pound Euro exchange rate climbed to a new three-month high in the first half of last week.
This came as the Euro was undermined by concerns over European energy security. The EU’s looming gas shortage stoking fears the Eurozone is heading toward a recession.
Meanwhile, the Pound opened the week on firm footing as GBP investors continued to price in a 50bps rate hike from the BoE.
The middle of the week saw the GBP/EUR exchange rate begin to relinquish some ground. An underwhelming UK services PMI weighing on the Pound.
Sterling then nosedived on Thursday in the wake of the BoE’s rate decision. While the BoE hiked rates by 50bps as forecast, the bank’s accompanying forecasts made for some bleak reading.
The BoE warned inflation could peak at 13% and that the UK is likely to slip into its longest recession since 2008. The BoE’s comments unsurprisingly unnerved GBP investors and triggered a 1% plunge in GBP/EUR.
The end of the week then saw the Euro consolidate its gains after Germany reported a surprise rebound in industrial production in June.
Three Things to Watch Out for This Week
- UK GDP
The Pound looks poised to plummet at the end of this week. Recession fears will likely be stoked as the UK’s latest GDP figure estimate is expected to report the economy contracted in the second quarter.
- UK Politics
Also likely acting as a headwind for Sterling this week will be ongoing UK political uncertainty.
- EU Industrial Production
The only EUR data release of note this week will be the latest EU industrial production figures. Will a stall in production growth weigh on the Euro on Friday?
GBP/EUR Forecast
In addition to the points mentions above, the Pound Euro exchange rate is likely to remain sensitive to European energy concerns.