Pound Euro (GBP/EUR) Exchange Rate Climbs as UK Recession Fears Fade

Pound Euro (GBP/EUR) Firms as FTSE 100 Hits Record High on Renewed Market Optimism

The Pound Euro (GBP/EUR) exchange rate is strengthening this morning as hopes of the UK avoiding a recession buoyed investors.

At time of writing, the GBP/EUR exchange rate is around €1.1256, a 0.22% climb from this morning’s opening levels.

Pound (GBP) Supported by Renewed Economic Optimism

The Pound (GBP) is enjoying relative success against its peers despite a lack of economic data. The FTSE 100 share index hit an all-time high as global market sentiment was buoyed by hopes of central banks finally slowing their interest rate increases. Despite numerous gloomy economic forecasts, the National Institute of Economic and Social Research (NIESR) predict the UK economy will grow in 2023.

The NIESR also expects the UK to narrowly avoid a recession. However, warnings of a lingering cost-of-living crisis could be capping further gains. Households in the UK could suffer a financial hit of up to £4000 this year, with low to middle income households to fare worse. Despite avoiding a recession, the continued living cost squeeze could still be devastating. The NIESR report added:

‘With the cost-of-living crisis having a lasting effect on households, for at least 7 million, it will certainly feel like a recession.’

Euro (EUR) Buoyed by Easing US Inflation Expectations

Meanwhile, the Euro (EUR) is enjoying its negative correlation with the US Dollar this morning as Federal Reserve Chair Jerome Powell inspired market optimism. Despite admitting that interest rates may continue to climb, his comments on the Fed’s ongoing ‘disinflation process’ have cheered the market.

Meanwhile, potentially limiting gains for the single currency is news out of Ukraine. President Volodymyr Zelenskiy is set to visit the UK for the first time since the invasion last year. UK Prime Minister Rishi Sunak has expressed plans to expand help for Kyiv, including the training of fighter jet pilots and marines. With increased help for Ukraine from the west, tensions could rise further, as Kyiv expect Russia to mount a new offensive.

Without major economic data to go by, the Euro continues to fluctuate on market mood and the Ukraine invasion.

Pound Euro Exchange Rate Forecast: Climbing German Inflation to Boost the Euro?

Looking ahead, the Pound Euro exchange rate could see further movement with the latest inflation data from Europe’s largest economy. Preliminary annualised inflation for Germany is expected to climb back up to 8.9%, after three months of softening CPI.

Meanwhile, the Pound will have to trade on market sentiment and domestic issues until Friday. GDP growth rate data could weigh further on Sterling if estimates prove accurate. A MoM fall and a stagnation in quarterly data is expected.

Danny Tingle

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