Pound Euro (GBP/EUR) Fluctuates as Economic Uncertainties Rise
The Pound Euro (GBP/EUR) exchange rate is trading narrowly as morale wanes in both the UK and Euro area economies.
At time of writing, the GBP/EUR exchange rate is around €1.1623, relatively unchanged from this morning’s opening levels.
Euro (EUR) Undermined by Economic Pessimism
The Euro (EUR) is trading in a mixed range this morning as Eurozone sentiment declined. The economic sentiment indicator to 93.3, the lowest level since November 2020. Marking a fourth consecutive month of declining morale in the Bloc, concerns over the economic outlook sapped confidence.
The continued impact of aggressive policy tightening, and stubbornly high inflation is weighing on morale. Downbeat confidence has been particularly felt in manufacturing, services, and the retail sector. Pantheon Macroeconomics said of the latest reading:
‘The ESI paints the same picture as the PMI; the downturn is intensifying, and it is spreading from manufacturing to other sectors. We already knew that consumer confidence fell, today we learnt that this was driven by households’ bleaker outlook for their personal financial situation and for the economy as a whole.’
Pound (GBP) Pressured by Weakening Housing Market
Meanwhile, the Pound (GBP) is remaining fairly supported despite economic headwinds persisting. Elevated rate hike bets from the Bank of England (BoE), and an upbeat market mood is keeping Sterling afloat.
However, further signs that the housing market is slowing could be keeping GBP investors wary. The latest lending data from the BoE showed mortgage approvals slipped to 49,400 in July, the lowest level since February. A larger-than-expected fall is concerning as surging interest rates dampened demand, and with further hikes expected, the situation could worsen. Jonathan Samuels, CEO of Octane Capital, said:
‘This reduction in market activity is the unfortunate consequence of the Bank of England’s tentative approach to managing inflation. (And) while we’ve seen a consistent string of hikes since the closing stages of 2021, the approach taken simply hasn’t been aggressive enough.
‘As a result, the pain being felt by borrowers has been prolonged and this has naturally led to a reduction in appetites where mortgage approvals are concerned.’
Pound Euro Exchange Rate Forecast: Softening German Inflation to Sour the Euro?
Looking ahead, the Pound Euro exchange rate could see further movement with the latest inflation data for Germany. An expected easing to 6%, which would be the lowest level since March, could see the European Central Bank (ECB) think twice about raising interest rates further.
Meanwhile, the Pound could be influenced by a speech from BoE Chief Economist Huw Pill tomorrow morning. With the current dilemma over hiking rates further which could trigger a recession, a dovish tilt from Pill could sap demand from Sterling.