Pound Euro (GBP/EUR) Exchange Rate Rebounds but Remains Pressured
(Updated 16:00, 1/9/22) The Pound Euro (GBP/EUR) exchange rate bounced off a two-month low earlier today as Sterling attracted some dip-buying, seemingly having entered oversold conditions.
Meanwhile, the Euro (EUR) may have suffered from its negative correlation to a strengthening US Dollar (USD).
The safe-haven ‘Greenback’ firmed throughout the day amid a risk-off market mood. Then in the afternoon, the US ISM manufacturing PMI beat market forecasts to hold steady in August. This in turn lifted expectations of a 75-bp rate rise from the Federal Reserve, helping the US Dollar Index hit a fresh 20-year high.
Significant financial stress now in the markets as #Powell painted a hawkish pic ( he is a flip-flopping mess). US Dollar index at new highs as gov't bond & note yields break to new highs. Currency pressure is acute. Things will break. #economy #stocks pic.twitter.com/RO047ht6V9
— Grimsby (@Pgrills24) September 1, 2022
This strength in the US Dollar weighed on the Euro, allowing GBP/EUR to recoup some losses.
Nevertheless, the Pound Euro pair remains subdued at around €1.1596. This is up 0.5% from today’s low of €1.1536 but still one of the weakest levels since June.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate at Near Two-Month Low
The Pound Euro (GBP/EUR) exchange rate is languishing at a seven-week low this morning as the spiralling economic crisis in the UK continues to unnerve GBP investors.
At the time of writing, GBP/EUR is trading at around €1.1551, its lowest level since mid-June.
Pound (GBP) Mired in UK Economic Anxiety
The Pound (GBP) remains under significant pressure today as the UK’s economic outlook continues to deteriorate.
Earlier in the week, economists from Goldman Sachs echoed the Bank of England’s (BoE) forecast of a UK recession beginning in the fourth quarter of this year and lasting through 2023. Meanwhile, Goldman warned that UK inflation could hit 22%.
At the same time, government borrowing costs are soaring. This creates further challenges for the Treasury amid calls for a significant spending package to help households weather the cost-of-living crisis.
Today, the Resolution Foundation has called the fall in living standards ‘shocking’ and ‘terrifying’. According to the thinktank, surging energy bills could slash 10% off household incomes and push 3 million people into poverty.
From our new report – the living standards crisis will stretch well beyond this winter into next year. Real earnings are forecast to continue falling until at least mid-2023, by which time all real pay growth since 2003 will have been wiped out pic.twitter.com/PLPH2GJ7ob
— Resolution Foundation (@resfoundation) September 1, 2022
GBP investors are also increasingly concerned about the direction of government policy if Liz Truss becomes Prime Minister. Truss – who is expected to win the Tory leadership election next week – has advocated an approach that diverges significantly with the BoE’s monetary policy.
Economists worry that a mismatch in fiscal and monetary policy could make the UK’s already-dire economic situation even worse. Tax cuts could push inflation even higher, forcing the BoE to further raise interest rates despite a looming recession.
Government borrowing would also need to increase, even as the interest repayments on public debt soar.
With the UK seemingly set for a long period of economic hardship, Sterling has collapsed in recent weeks. GBP exchange rates remain depressed today.
Euro (EUR) Firms on Positive German Retail Sales
Meanwhile, the Euro (EUR) enjoyed a surprise rise in German retail sales this morning.
Domestic sales in Europe’s largest economy unexpectedly grew by 1.9% in July, rather than stalling as expected. This relatively upbeat news helped lift the single currency.
In addition, EUR may still be enjoying tailwinds from yesterday’s Eurozone inflation rate. The CPI exceeded forecasts, hitting a fresh record high of 9.1%, prompting bets for a stronger interest rate rise from the European Central Bank (ECB) next week.
Pound Euro Exchange Rate Forecast: Sterling to Remain Subdued
Looking ahead, the Pound Euro exchange rate seems unlikely to make a recovery any time soon. The economic outlook for the UK remains bleak, while a lack of fresh economic data may leave GBP investors without much trading impetus.
The Euro could trade in relation to its negative correlation with the US Dollar (USD) later today and tomorrow. In particular, Friday’s American non-farm payrolls data could cause significant movement in the ‘Greenback’. After the ADP employment change miss yesterday, there is a chance that a disappointing report could dent the Dollar, which in turn may boost the Euro.