Pound Euro (GBP/EUR) Exchange Rate Slips as Risk Appetite Retreats after Strong US Data
(Updated 16:33 22/12/22)
The Pound Euro (GBP/EUR) exchange rate slipped from its earlier position over the course of today. A retreat in global risk appetite following better-than-expected US data weighed on the currency pair.
The pair may have also been pulled lower as markets continued to digest the downward revision third quarter UK GDP figures. Analysts remained downbeat about the UK economy’s long-term prospects following the data.
Speaking at a conference today, chief global strategist at Principal Asset Management Seema Shah said:
‘With the economy contracting, interest rates rising and fiscal policy tightening, it is hard to see the bright side for the UK economy in 2023.’
At time of writing the GBP/EUR exchange rate was at around €1.1351, which is down roughly 0.3% from this morning’s opening figures
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Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly amid Risk-On Mood
The Pound Euro (GBP/EUR) exchange rate is trending sideways today. Poor third quarter GDP data for the UK may be weighing on the currency pair. Hawkish rhetoric from European Central Bank (ECB) policymakers could also be pulling the pair lower.
On the other hand, a risk-on market mood could be limiting losses for GBP/EUR today.
At time of writing the GBP/EUR exchange rate is at around €1.1367, which is virtually unchanged from this morning’s opening figures.
Pound (GBP) Drops as Q3 GDP Figures Put UK at Bottom of G7 Growth Table
The Pound (GBP) is coming under pressure against many of its peers today. A downward revision in third quarter GDP figures is likely contributing to Sterling’s losses. A risk-on market mood may be helping to cushion GBP’s losses against its safer rivals, however.
The final reading of third quarter GDP figures earlier today may be pushing the Pound lower. The figures were revised downward to 1.9%, indicating a greater-than-forecast contraction in the UK economy. The disappointing growth data puts the UK at the bottom of the growth table for G7 countries.
The data also largely confirms a 2023 recession for the UK as household incomes also contracted amid soaring bills and grocery costs.
Gabriella Dickens, economist at Panetheon Macroeconomics, said:
‘We expect Britain to suffer the deepest recession among major advanced economies in 2023, due to the severity of the headwinds from both monetary and fiscal policy.’
Further indications of the negative impact of Brexit on UK businesses could also be keeping pressure on the Pound today. The results of a survey by the British Chambers of Commerce (BCC) indicated that more than three-quarters of businesses had seen no benefits from the UK’s Brexit deal.
Euro (EUR) Supported by Hawkish ECB Rhetoric
The Euro (EUR) is ticking higher today despite a return of global risk appetite is weighing on the currency. The Russia-Ukraine conflict may also be denting confidence in EUR today.
In a speech on Wednesday, Russian President Vladimir Putin stated that the country would continue their invasion with no financial limits. Russian military officials also signalled that they would be raising the age of conscription to bolster the country’s forces.
The single currency may be finding support from a hawkish stance from the European Central Bank (ECB), however. Multiple ECB policymakers have spoken in favour of further interest rate hikes today.
Speaking to French newspaper Le Monde, ECB Vice-President Luis de Guindos said:
‘If we do nothing, the situation would be worse because inflation is one of the factors behind the current recession. Increases of 50 basis points may become the new norm in the near term.’
ECB board member Yannis Stournaras also signalled on Thursday that interest rates could ‘rise towards 3% by March.’
GBP/EUR Exchange Rate Forecast: Will Further Industrial Action Dent Confidence in Sterling?
The Pound will see no significant data over the rest of this week. The currency is likely to be affected by the ongoing industrial action across the country, as well as BoE rate hike bets.
A healthy risk appetite is currently underpinning Sterling, although the downbeat GDP figures could dent confidence in the currency as the day goes on.
The Euro will also see no further data this week ahead of the Christmas period. The single currency could see movement from any shifts in risk appetite, as well as ECB rate hike bets. Additionally, further developments in the Russia-Ukraine war could also weigh on EUR.