Pound Euro (GBP/EUR) Exchange Rate Falls Further as UK Outlook Worsens
(Updated 16:33 11/11/22)
The Pound Euro (GBP/EUR) exchange rate slipped even lower over the course of the day. Markets continued to digest the UK’s poor GDP figures that signalled an imminent deep recession for the UK.
Investors may also be limiting bets on the Pound ahead of next week’s autumn fiscal statement from the UK government. Analysts remain uncertain rgearding the impact the statement may have on the UK’s long-term outlook. Recent reports have indicated that Chancellor Jeremy Hunt is set to raise taxes and cut spending.
Stephen Millard, NIESR’s deputy director for macroeconomics, had the following to say on Hunt’s expected approach:
‘It’s not at all clear that the Chancellor needs to raise taxes or cut spending in the Autumn Statement next week. It just doesn’t have to be this way.’
At time of writing the GBP/EUR exchange rate was at around €1.1404, which is down roughly 0.6% from this morning’s opening figures.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Drops as UK Slides Closer to Recession
The Pound Euro (GBP/EUR) exchange rate is slipping today. Poor UK GDP is likely weighing on the currency pair as markets increasingly price in a deep recession for the UK.
Hawkish comments from European Central Bank (ECB) officials may also be weighing on GBP/EUR today.
Losses for the pair are potentially being limited by some better-than-forecast data releases for the UK’s private sector, however.
At time of writing the GBP/EUR exchange rate is at around €1.1441, which is down roughly 0.3% from this morning’s opening figures.
Pound (GBP) Edges Higher Despite Poor GDP Data, Slips Against Euro
The Pound (GBP) is ticking higher against many of its peers today. Poor GDP data may be capping gains for Sterling, however. A risk-off mood is seeing losses for GBP against the Euro (EUR), however.
Figures today indicated that the UK’s economy contracted by 0.2% in the third quarter of 2022. Whilst the downturn wasn’t as bad as expected, the figures added to expectations of an imminent recession in the UK.
GDP data also showed a 0.6% contraction in the UK economy in September alone. The data’s impact wasn’t as bad as anticipated due to an upward revision in August’s GDP data.
James Smith, developed markets economist at ING, said:
‘Wrapping that all together, we currently expect a cumulative hit to GDP of roughly 2% by the middle of 2023. That would be a comparable hit to the 1990s recession, and is somewhere between the Bank of England’s two forecasts released last week.’
The Pound is likely being underpinned by some above-forecast data releases, however. Manufacturing and industrial production fell by less than forecast.
Euro (EUR) Bolstered by ECB Rate Hike Bets
The Euro (EUR) is climbing against its rivals amid a retreat in global risk appetite. An uptick in Eurozone bond yields may also be propping up the single currency.
EUR may also be finding support after German inflation figures today. The final reading of October’s inflation printed at 10.4%, its highest reading since December 1951. Soaring energy and food prices were highlighted as key drivers.
The Euro may also be being bolstered by expectations of further interest rate hikes from the European Central Bank (ECB). Hawkish comments from ECB officials this week have added to market bets on aggressive action from the central bank.
Speaking on Thursday, ECB policymaker Joachim Nagel signalled that the central bank must ‘act decisively’.
GBP/EUR Exchange Rate Forecast: Will UK Inflation Prompt BoE Rate Hikes?
Looking to the coming week for the Pound, unemployment in September is forecast to remain close to record-lows on Tuesday. Alongside an expected further rise in average earnings, the data could push GBP higher amid expectations of further interest rate hikes from the BoE.
Wednesday’s inflation figures could have a similar effect if they print as forecast. October’s inflation is expected to reach fresh record-highs. Bets on BoE action could boost Sterling.
The UK government’s long awaited fiscal statement could prompt losses in GBP, however. Thursday’s reveal of the statement could dent confidence in the currency if it confirms the rumoured widespread spending cuts.
Finally for the Pound, a predicted drop in retail sales on Friday could see the currency fall further.
For the Euro, a slowdown in GDP growth on Tuesday could weigh on the single currency. Third quarter growth is expected to remain positive but slow to 0.2%.
On Thursday, the final reading of October’s Eurozone inflation could prevent any major losses for EUR however. The uptick could also boost ECB rate hike bets.