Pound Euro (GBP/EUR) Exchange Rate Continues to Tumble as UK Enters Recession
(Updated 16:45, 4/11/22) The Pound Euro (GBP/EUR) exchange rate initially gained ground today as the Pound (GBP) enjoyed some dip-buying. However, yesterday’s bleak outlook from the Bank of England (BoE) eventually saw Sterling slump again.
Although the BoE raised interest rates by 75bps, it also said that the UK is currently in a recession which will likely last until mid-2024. This grim forecast has pushed the Pound lower.
Meanwhile, the Euro (EUR) enjoyed its positive correlation to the US Dollar (USD), which slumped in the afternoon. US jobs data showed a resilient jobs market and cooling wage growth, prompting optimism in markets and a paring back of Federal Reserve rate rise bets.
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Pound Euro (GBP/EUR) Exchange Rate Attempts Feeble Recovery
The Pound Euro (GBP/EUR) exchange rate has been fluctuating higher today, wavering upwards through overnight trade and extending its gains into European trade. However, Sterling still seems fragile.
At the time of writing, GBP/EUR is trading at around €1.1474, up half a cent from an overnight low of €1.1424.
Pound (GBP) Claws Back Losses but Remains Muted
The Pound (GBP) has been trudging higher today following yesterday’s sharp sell-off. However, it remains in a weakened state, with GBP/EUR down around 1.75% since the start of this week’s trade.
Sterling tanked yesterday after the Bank of England (BoE) presented a dismal outlook for the UK economy.
The bank said it believes the UK is already in a recession, which it predicts will last until mid-2024, making it the longest period of negative growth on record. When the recession ends, the BoE expects GDP growth to remain subdued.
Despite this bleak forecast, the bank decided to raise interest rates by 75 basis points – its largest rate hike since 1989 – further squeezing the UK economy.
Today, GBP exchange rates have recovered somewhat, with traders looking to pick up a bargain on the oversold UK currency. In addition, a positive market mood seems to be supporting the increasingly risk-sensitive Pound. However, GBP remains muted.
Euro (EUR) Subdued amid Mixed Data
Meanwhile, the Euro (EUR) is struggling for a clear direction this morning following mixed data.
Earlier on, Germany’s latest factory orders revealed a far larger-than-forecast slump. Orders contracted by a whopping 4% in September, rather than the expected 0.5%.
Later on, the Eurozone’s final composite PMI beat preliminary estimates. However, it still revealed a third consecutive month of deepening contraction in the bloc’s services sector.
EUR was then supported by some comments from European Central Bank (ECB) President Christine Lagarde. Lagarde reiterated the bank’s position that inflation is too high and policymakers will continue raising interest rates to bring it to heel.
These moderately hawkish remarks lent the Euro some support, although not enough to prompt a notable upside overall.
Pound Euro Exchange Rate Forecast: BoE Comments to Prompt More Sharp Movement?
Looking ahead, a speech from BoE Chief Economist Huw Pill could impact the Pound. If Pill reaffirms the BoE’s bleak outlook, Sterling could face renewed selling pressure. However, if he offers a glint of hope – perhaps by saying the government’s fiscal statement could possibly lessen the severity of a recession – then GBP could find some support.
As for the Euro, a lack of Eurozone economic data for the rest of the session means it could trade according to its strong negative correlation with the US Dollar (USD). Markets will be watching the latest US labour market report very carefully as it could give an indication as to whether the Federal Reserve will continue aggressively raising interest rates. A strong jobs report could boost the US Dollar, which in turn may weigh on the single currency.