Pound Euro (GBP/EUR) Exchange Rate Stumbles as Global Recession Anxieties Increase
Article updated 15:49, 1/8/2023:
The Pound Euro (GBP/EUR) exchange rate is falling this afternoon, as global recession jitters sour the market mood.
Following the publication of the latest US JOLTs job openings, which showed a fall in jobs created, the market mood has shifted to downbeat trade. As such, the safer Euro (EUR) is winning out against the increasingly risk-sensitive Pound (GBP).
However, GBP/EUR’s losses may be being limited by the single currency’s negative correlation with the US Dollar. The US Dollar is gaining ground against its peers, which could be limiting EUR.
At the time of writing, GBP/EUR is trading at around €1.1634, falling by roughly 0.3% from today’s morning rates.
Original article continues below:
Pound Euro Exchange Rate Rangebound amid Growing UK Economy Jitters
The Pound Euro exchange rate is seeing minimal trade this morning, as economic anxieties cap GBP’s gains.
At the time of writing, GBP/EUR is trading at around €1.1686, showing little deviation from the morning’s opening rates.
Pound (GBP) Capped by Economic Anxieties
The Pound (GBP) is seeing its gains capped this morning, as jitters arise over future interest rate hikes economic impact.
While markets have already priced in a 25bps hike, the potential of further tightening appears to be sparking some concerns. The UK’s economic outlook is already on something of a knife-edge, with recent indexes indicating a slowing private sector.
This morning, the final manufacturing PMI showed that UK factory output shrank at the fastest pace since July 2020.
Dr John Glen, Chief Economist at CIPS, commented:
‘Overall, it seems that recovery has stalled. Concerns about further interest rate rises making borrowing more expensive and customers reluctant to buy had the sector running on empty for another month but more than half of survey respondents kept their chins up and remained hopeful about the next 12 months.’
Euro (EUR) Muted despite Falling Unemployment
The Euro (EUR) is seeing muted trade this morning, despite news that unemployment fell in the Eurozone over June.
The rate for the bloc dropped to 5.4%, below forecasts of 5.5% and likely signalled that the EU’s labour market remains tight.
However, markets appeared unwilling to cement this news, as investors still view the European Central Bank (ECB) as unlikely to hike.
Furthermore, the German unemployment data paints a more muddled picture. While the seasonally adjusted rate fell to 5.6% in July, unemployment increased by 62,000.
Carsten Brzeski, Global Head of Macro at ING, commented:
‘For those who want to find some sign of weakening in the labour market, today’s report brought some reassurance: the July increase was the second largest July increase of the last 10 years. Compared with last year, unemployment was up by almost 150,000.’
GBP/EUR Exchange Rate Forecast: BoE Rate Decision in Focus
Looking ahead, the core catalyst of movement for the Pound will come on Thursday, when the BoE take the stage.
While the bank is expected to push ahead with a 25bps hike, the chance of a 50bps hike remains. If this occurred, Sterling would likely spike and could continue to gather pace against its peers.
If the hike is more modest as expected, but accompanied by hawkish forward guidance, GBP may similarly strengthen. However, if the BoE sounds even remotely dovish, GBP may be unable to capitalise on the hike and could diminish against its peers.
For the Euro, Thursday sees the release of the latest German balance of trade data. As an export driven economy, forecasts of an increase in the German trade surplus could cheer EUR investors.