Pound Euro (GBP/EUR) Exchange Rate Remains Pressured as EUR Benefits from Slipping USD
Article updated 16:05, 9/8/23:
The Pound Euro (GBP/EUR) exchange rate is falling further this afternoon, as the Euro benefits from a weakening US Dollar.
As the market mood shifts away from risk-averse trade, the safe-haven ‘Greenback’ is unable to gain ground.
Because of the negative correlation the Euro shares with USD, this is allowing it to strengthen against its peers, such as the Pound.
At the time of writing, GBP/EUR is trading at around €1.1592, falling by just over 0.3% from the morning’s opening rates.
Original article continues below:
Pound Euro Exchange Rate Weakens as UK Recession Forecast
The Pound Euro exchange rate is weakening this morning, following bleak forecasts for the UK economy.
At the time of writing, GBP/EUR is trading at around €1.1602, falling by just over 0.2% from the morning’s opening rates.
Pound (GBP) Edges Lower amid Bleak Economic Outlook
The Pound (GBP) is edging lower this morning, following downbeat assessments from The National Institute of Economic and Social Research (NIESR).
The NIESR have suggested that the UK economy will not only have lost five years’ worth of growth, and is expected to enter recession.
Due to supply shocks from Brexit, Covid and the Russia-Ukraine war, alongside elevated interest rates, the outlook is bleak.
Professor Stephen Millard, Deputy Director of Macroeconomic Modelling and Forecasting for NIESR, explained:
‘As a result, we expect stuttering growth over the next two years and GDP [gross domestic product] to only recover to its 2019 quarter four level in 2024 quarter three. The need to address the UK’s poor growth performance remains the key challenge facing policymakers as we approach the next election.’
Elsewhere, a wavering market mood is likely yielding further pressure on Sterling. After a downbeat start, the mood has brightened somewhat, but as an increasingly risk-sensitive currency GBP was unable to garner support.
Euro (EUR) Undermined by Light Data Calendar
Due to a lack of data, the Euro (EUR) seems unable to firmly capitalise on the morning’s risk-averse market mood.
Because of this, while the single currency is managing to climb against some peers, its gains are small-scale at best.
As a safer currency, EUR is benefitting from the sour mood brought about by Chinese deflation anxieties. This morning, the latest Chinese consumer price index printed at -0.3% in July, fractionally below forecasts.
Gary Ng, Asia Pacific Senior Economist at Natixis, commented:
‘For China, the divergence between manufacturing and services is increasingly apparent, meaning the economy will grow at two speeds in the rest of 2023, especially as the problem in real estate re-emerges. It also shows China’s slower-than-expected economic rebound is not strong enough to offset the weaker global demand and lift commodity prices.’
However, following dovish comments from Federal Reserve official Patrick Harker, the market mood has improved somewhat. As such, the Euro may be seeing its gains capped this morning.
GBP/EUR Exchange Rate Forecast: UK GDP Stall to Dent GBP?
Looking ahead for the Pound, investor focus is likely to shift towards Friday’s GDP data. Over Q2, the UK economy is forecast to have stalled.
If the forecasts are accurate, this is likely to weigh on Sterling by sparking recession anxieties. As previous data has indicated the UK economy is on something of a knife-edge, the gloomy news could prompt a sell-off.
For the Euro, meanwhile, the data calendar is set to remain thin for the remainder of the week. As such, the common currency may be left vulnerable to shifts in the market mood. As a safer currency, a lean towards bullish trade could weaken EUR.