Pound Euro Exchange Rate Fluctuates as German Recession Fears Mount
The Pound Euro (GBP/EUR) exchange rate is trading erratically as German GDP contracts further than expected, fuelling recession concerns.
At time of writing the GBP/EUR exchange rate is trading around €1.1356, relatively unchanged from this morning’s opening levels.
Euro (EUR) Undermined by Mounting Recession Fears
The Euro is trading with mixed success this morning as German GDP contracted by 0.4% in Q4 2022. Against expectations of a 0.2% decline, recession fears are once again on the rise in Europe’s largest economy.
With expectations of the first quarter of 2023 to also contract, it would signal a technical recession. Destatis, who published the figures, commented on the downbeat data:
‘The German economy markedly lost momentum at the end of the year. The gross domestic product grew in the first three quarters of last year (+0.8%, +0.1% and +0.5%) despite difficult framework conditions in the global economy.’
Despite Germany’s central bank Bundesbank predicting another contraction in Q1 2023, recent business surveys are more optimistic. An improved sentiment across the board, and downward risks appearing to recede, EUR investors could be buoyed on renewed optimism.
Pound (GBP) Pressured by Persistent Domestic Woes
The Pound is struggling to find a clear direction this morning amid a lack of major economic data. Despite a rebound in consumer sentiment, the cost-of-living crisis still weighs heavily.
As supermarkets are facing fresh food shortages, food inflation continues to soar. Everyday staple items have seen a surge in prices over the past year, with low-income households bearing the brunt of inflation. Sue Davies, Head of Food Policy at Which?, comments that supermarkets need to act quicker to ensure households are not left without:
‘It’s clear that food costs have soared in recent months, but our inflation tracker shows how households relying on supermarket value ranges are being hit the hardest.
‘Supermarkets need to act and Which? is calling for them to ensure everyone has easy access to basic, affordable food ranges at a store near them, particularly in areas where people are most in need.’
However, providing modest support to Sterling is sustained interest rate hike expectations. A hawkish speech from Bank of England (BoE) policymaker Catherine Mann yesterday buoyed investors on further rate hikes.
Pound Euro Forecast: Dovish BoE Speech to Sink Sterling?
Looking ahead, the Pound Euro exchange rate could see a slide on a dovish speech later today. If BoE Monetary Policy Committee (MPC) member Silvana Tenreyro sticks to her guns and remains dovish, the Pound could slide. Tenreyro is known for being one of the more dovish members of the MPC, and any tempered rate hike expectations could weigh on sentiment.
Elsewhere, the Euro will be left to trade on market sentiment alone heading into the weekend. A lack of economic data will leave headlines out of Ukraine and its negative correlation to the US Dollar as main drivers.