Pound Euro Exchange Rate Fluctuates as Economic Jitters
The Pound Euro (GBP/EUR) exchange rate is trading narrowly as ongoing concerns over the UK’s economy offset further tightening expectations from the Bank of England (BoE).
At time of writing the GBP/EUR exchange rate is trading around €1.1689, relatively unchanged from the morning’s opening levels.
Pound (GBP) Undermined by Economic Jitters
Amid an absence of data, the Pound (GBP) is left to trade on market sentiment. Investors are concerned over the ongoing economic woes of the UK.
With both inflation and labour market data surprising to the upside this week, further rate hikes from the BoE are all but baked in. Sky-high headline inflation and surging wage growth could leave the central bank no choice but to tighten further.
However, recession fears are keeping a firm lid on any potential gains for Sterling. Despite the UK economy showing surprise resilience in the first half of 2023, economists remain concerned. The delayed impact of soaring interest rates could weigh heavy in the second half of the year. George Dibb, Head of the Institute for Public Policy Research’s (IPPR) Centre for Economic Justice, commented:
‘It’s good news that headline inflation is lower, especially with energy bills coming down. But there is a very real risk that a recession may soon overtake price rises as the main economic concern. Other countries have brought inflation under control quicker than in the UK, with more support for households and workers avoiding unnecessary pain.’
Euro (EUR) Pressured from Negative Correlation with USD
Meanwhile, the Euro (EUR) was also left to trade on external factors amid a lack of economic data. But the single currency is under pressure from a resurgent US Dollar (USD).
The negative correlation the Euro shares with the US Dollar is keeping a lid on the former as the ‘Greenback’ climbed on renewed rate hike bets. With the Federal Open Market Committee (FOMC) minutes revealing that further tightening could be required. The minutes also added that inflationary risks remain elevated. The markets are now pricing in more than a 30% probability that the Federal Reserve will raise interest rates again by the end of the year.
Pound Euro Forecast: Slumping UK Retail Sales to Dent the Pound?
Looking ahead, the Pound Euro exchange rate could see further movement with the latest retail sales figures tomorrow. An expected 1.5% monthly fall in sales would be the sharpest drop in two years, highlighting the impact of soaring borrowing costs have on consumer spending. Sterling could sour on further evidence that the UK economy could be slowing.
Meanwhile, the Euro could be impacted by the final readings for Eurozone inflation. An expected modest cooling from 5.5% to 5.3% in the headline reading could be overshadowed by core inflation that is expected to remain unchanged at 5.5%. The Euro could climb on sticky inflation, elevating rate hike bets from the European Central Bank (ECB).