Pound Euro (GBP/EUR) Exchange Rate Subdued amid UK Economic Pessimism
The Pound Euro (GBP/EUR) exchange is trading with modest gains today, but still near recent lows, as an increasingly gloomy outlook for the UK economy keeps Sterling capped.
At the time of writing the GBP/EUR exchange rate is trading at €1.1515, marginally higher than this morning’s opening rate, as the Pound Euro rate treads water.
Pound (GBP) Undermined by UK Slowdown Fears
The Pound (GBP) continues to struggle near recent lows amid a lack of fresh UK data today, with GBP pressured by ongoing worries surrounding the UK’s economic health.
Recently, evidence has been mounting that the UK economy is facing a considerable slowdown in growth. The UK’s most recent PMIs reported a shocking contraction in service sector activity, while new forecasts published this week predict that the British economy will face long-term difficulties.
In addition, ongoing worries about high UK inflation and a more dovish stance from the Bank of England (BoE) are also pressuring the Pound. Some analysts are concerned that if the BoE fails to get a grip on inflation now, it could lead to even more economic damage down the line.
Ludovic Subran, Chief Economist at Allianz, stated:
‘The UK is one of the few countries for which we really see a wage price spiral in the making. The Bank of England decision to skip is not very reassuring.’
Subran went on to suggest that the BoE may go on to perform a series of ‘knee-jerk reactions’ leading to a ‘stop-and-go hiking cycle’.
Speculation that the BoE is not as alert to inflation as it should be is adding to uncertainty around the UK economy, thereby pressuring the Pound.
Euro (EUR) Choppy amid German Consumer Confidence Index
Meanwhile, the Euro (EUR) is facing pressure today after the GfK consumer climate indicator for Germany turned in its lowest reading since April, reaching a worse-than-forecast -26.5.
With decreased consumer confidence in relation to income expectations, buying propensity, and savings, German consumer morale proves to be declining, and may see the Euro facing headwinds throughout today’s session.
Rolf Bürkl, GfK Consumer Expert, commented:
‘The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more… private consumption will therefore not make a positive contribution to overall economic development this year.’
As Germany is the Eurozone’s largest economy, concerns about the country’s economic health can weigh heavily on the Euro. The data seems to be applying some pressure to EUR exchange rates today, although the safer single currency is resisting steeper losses amid a cautious market mood.
Pound Euro Exchange Rate Forecast: Subdued Trade as UK and Eurozone Data Awaited
Looking to the days ahead, the only notable UK data for the remainder of the week is the final GDP growth rate figure on Friday. Confirmation of a modest uptick in growth in the second quarter could help support Sterling, although only a surprise result is likely to cause more significant movement.
EUR investors may be particularly wary of repositioning ahead of the Eurozone’s consumer price index, also due on Friday. The release of the CPI flash may see the Euro plummet, as inflation is forecast to have dropped sharply this month.
In the meantime, risk appetite may continue to drive GBP/EUR.