Pound Euro Exchange Rate Levels as Markets Brace for Poor Economic Forecast
The Pound Euro (GBP/EUR) exchange rate is trading sideways so far today, amid a lack of significant data releases from either the UK or the Eurozone.
Driving movement in the exchange rate instead are downbeat forecasts for the UK economy and global risk-off headwinds as the conflict between Russia and Ukraine rages on.
At the time of writing, GBP/EUR is trading at €1.1386, just below today’s opening levels.
Pound (GBP) Weakens as Economists Strike Downbeat Tone
The Pound (GBP) is sliding against the majority of its peers today, as a lack of data over the weekend exposes the currency to external factors. Negative forecasts from leading economists paint a gloomy picture ahead, dampening support for Sterling.
Yesterday, Chancellor Kwasi Kwarteng was handed the initial predictions from the Office for Budget Responsibility (OBR), which are thought to show a large shortfall in public finances. Sir Charlie Bean, a former Bank of England (BoE) deputy governor, predicts a ‘hole’ of more than £60bn:
‘What he’ll be confronted with,’ says Bean, ‘is the extent to which the public finances has deteriorated since the spring. It will be interesting to see what the Chancellor comes up with.’
The forecasts are expected to take into account the £43bn of unfunded tax cuts proposed by Kwarteng in his mini-budget last week. Sir Charlie Bean outlines three possible responses from the government: U-turns on promised tax cuts, cuts to public spending or further borrowing.
The Chancellor is now under pressure to update his fiscal plans to reflect the country’s economic situation. His initial argument, that cutting taxes could help to drive economic growth, has been largely dismissed as a ‘fairytale’.
Experts expect that Kwarteng will announce his revised plans before the end of the month, although the fiscal statement was originally due to be given on 23 November.
Euro (EUR) Trades Mixed as Investors Digest Weak German Data
The Euro (EUR) is trading in a mixed range today as investors digest yesterday’s weaker-than-expected sales and production data from Germany. Capping losses for the single currency, however, are widespread risk-off headwinds.
Data released yesterday from the bloc’s largest economy revealed that industrial production fell by 0.8% in August, while retail sales dropped by 1.3%: 0.2% more than estimated.
Economists noted that consumers were particularly reluctant to spend on food, as retail food sales dropped by 1.7% on a monthly basis. This is due, at least in part, to high inflation: consumer prices in Germany hit their highest level in more than 25 years last month.
Striking a downbeat tone, Carsten Brzeski from ING Bank commented that an economic recession now seems inevitable. ‘The only question is how severe such a contraction or recession will be,’ he said.
Despite such forecasts, the Euro is managing to climb against several of its peers, as risk-off sentiment draws support to the comparatively safe-haven currency. Tailwinds are limited, however, by strength in the US Dollar (USD) – which has a strong negative correlation with EUR.
Pound Euro Exchange Rate Forecast: UK Employment Data to Drive Movement?
Looking ahead, UK employment data is likely to be the main catalyst for movement in the Pound Euro exchange rate early next week.
While political developments and comments from both the BoE and European Central Bank (ECB) may trigger fluctuations, Tuesday’s employment report has potential to significantly buoy the Pound. Unemployment is expected to remain unchanged from August’s figure, while average earnings look to have increased.