The Pound Euro (GBP/EUR) exchange rate stumbled on Friday, losing most of the ground it had gained over the preceding week, as the Bank of England (BoE) delivered a gloomy economic outlook.
Sterling has recovered it’s footing a bit this morning however, with GBP/EUR moving away from Friday’s worst levels.
What’s Been Happening: Pound Crashes as UK Economy Enters Recession
The Pound Euro exchange rate began last week tentatively, before succumbing to a raft of poor economic data.
Soaring borrowing costs, rocketing inflation and falling house prices prompted GBP to endure a weeklong slide. Despite manufacturing PMIs coming in above expectation, and a general air of optimism towards new PM Rishi Sunak, GBP was unable to snap out of its slump. The Bank of England (BoE) cemented this gloom, as they announced that the UK had entered a prolonged recession.
The recession news prompted a more pronounced Sterling crash. Rising inflation and interest rates painted what the BoE called ‘a very challenging outlook for the UK economy.’ As such, investors moved away from Sterling as they began to consider the fallout of the recession.
However, GBP/EUR losses were capped as the common currency came under pressures of its own, starting with higher-than-expected inflation on Monday. Adding to this was October’s manufacturing and services PMIs for the Eurozone demonstrating deeper contractions, prompting concern over the bloc’s economic outlook.
European Central Bank (ECB) President Christine Lagarde managed to cushion EUR’s losses with hawkish rhetoric.
Three Things to Watch Out for This Week
- UK GDP
Friday is forecast to bring a third-quarter contraction for UK GDP. With a fall of 0.5% expected, the Pound may weaken as recession fears are stoked.
- Central Bank Speeches
BoE and ECB policymakers are scheduled to speak throughout the week. Investors will keep a watchful eye on any policy indications from either central bank.
- EU Retail Sales
Tuesday brings the EU’s YoY retail sales for September. With a downturn in consumer spending forecast, the Euro may struggle.
Pound Euro Outlook
While Sterling has recouped some of its recent losses, the Pound Euro exchange rate could trade in a narrow range this week as key data releases are expected to signal economic woes for both sides.