Pound Euro Exchange Rate Hits 16-Day Low

Pound Euro (GBP/EUR) Exchange Rate Extends Downside

(Updated 14:30, 11/8/22) The Pound Euro (GBP/EUR) exchange rate extended its downside today as worries about the UK economy continue to plague the Pound (GBP).

Since the Bank of England (BoE) warned last week of an impending recession, Sterling has been under pressure. More recently, news that UK energy bills could soar to £4,266 per year in January has added to GBP’s woes.

Investors seemed unimpressed with the latest assurances from the government. Chancellor Nadhim Zahawi, Business Secretary Kwasi Kwarteng and outgoing Prime Minister Boris Johnson today met with energy executives to urge them to do more for struggling households.

Following the meeting, Zahawi said:

‘This morning I hosted industry leaders from the electricity sector to discuss what more they can do to work with Government and act in the interest of the country in the face of rising prices caused by Putin’s illegal invasion of Ukraine.

‘We have already acted to protect households with £400 off energy bills and direct payments of £1,200 for 8m of the most vulnerable British families. In the spirit of national unity, they agreed to work with us to do more to help the people who most need it.’

However, there were no concrete details on how this would translate into action, and Johnson reiterated that it would be up to his successor to announce new policy decisions.

In addition, the CEOs of the UK’s two energy supermajors – Shell and BP – were notably absent from the meeting.

Meanwhile, the Euro (EUR) is continuing to enjoy its negative correlation to a weakening US Dollar (USD).

Today’s US PPI release reinforced the hope that inflation may be easing in America. US producer prices unexpectedly declined 0.5% month on month in July, following the large drop in US annual headline inflation from 9.1% to 8.5% yesterday.

As inflation cools, there’s less pressure on the Federal Reserve to raise rates so aggressively. This in turn has dampened demand for the US Dollar, subsequently boosting demand for the Euro.

At the time of writing, GBP/EUR is trading at €1.1819, having bounced off a 16-day low of €1.1806.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Down amid Subdued Mood

The Pound Euro (GBP/EUR) exchange rate slipped lower this morning as the ongoing weakness in the US Dollar (USD) buoyed the Euro (EUR), by way of the currencies’ negative correlation. Meanwhile, the Pound (GBP) seems muted as an expected contraction in UK GDP looms over the currency.

At the time of writing, GBP/EUR is trading around €1.1842, down from €1.1858 at the start of today’s session.

Pound (GBP) Muted ahead of UK GDP

The Pound is rather subdued this morning amid thin trading conditions. Notable UK economic data remains absent, and markets are perhaps taking a breather after yesterday’s excitement.

Additionally, GBP investors seem hesitant ahead of tomorrow’s UK GDP data. Following the Bank of England’s (BoE) forecast of a drawn-out recession starting at the end of this year, Sterling may be particularly sensitive to the latest report on GDP growth.

In the meantime, the Conservative leadership contest grinds on. Liz Truss is pulling even further ahead of Rishi Sunak, and her U-turn on potential payouts to households struggling with the cost-of-living crisis seems to have partially allayed fears about surging energy bills.

Nevertheless, the UK’s economic outlook is rather bleak at present. As a result, Sterling may remain muted.

Euro (EUR) Buoyed by USD Weakness

Turning to the Euro, EUR is trending up today as it enjoys its strong negative correlation with USD.

Yesterday, the US CPI printed below forecasts, suggesting that inflation may have peaked. This, in turn, saw markets scale back their expectations for further Federal Reserve rate hikes, thereby cheering global markets and causing a slump in the US Dollar.

Despite some hawkish comments from Fed officials today, the sell-off in USD continues, which is then lifting the Euro.

However, fears about dwindling gas supplies in the Eurozone continue to hang over the single currency. With the bloc potentially facing a difficult winter, EUR gains may be capped.

Pound Euro Exchange Rate Forecast: GBP/EUR to End the Week on a Low?

Through the rest of today’s session, there may be limited movement in the Pound Euro pair. Domestic factors are likely to be the focus for much of the day, while the US PPI release in the afternoon has the potential to affect GBP/EUR.

Tomorrow could see much steeper movement as the scarcity of European data comes to an end.

Economists expect the UK’s latest GDP release to show a 1.3% contraction in the UK economy in June. If the report prints true, Sterling could slide.

Meanwhile, a modest rise in Eurozone industrial production could provide EUR with some support.

Samuel Birnie

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