Pound Euro (GBP/EUR) Exchange Rate Slides on UK Recession Fears
The Pound Euro (GBP/EUR) exchange rate is on the back foot today after the UK’S latest GDP figures reported a surprise contraction in domestic growth in October.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1608, down roughly 0.2% from today’s opening levels and close to a two-week low.
Pound (GBP) Tumbles following UK GDP Release
The Pound (GBP) is facing headwinds this morning, after the UK’s latest GDP reading printed below expectations.
The figures showed that the British economy shrank 0.3% in October, with analysists having predicted a flat reading. This comes after the last GDP reading reported a 0.2% expansion of growth.
Sterling has stumbled and the GDP figures revives fears the UK could face a winter recession.
Economist at audit, tax and consulting firm RSM UK, Thomas Pugh comments:
‘The big picture is still one of a stagnating economy. We doubt growth will materially pick up until towards the end of next year, meaning that the spectre of recession will hang over the UK economy for a long time yet.’
The data also comes on the eve the Bank of England’s (BoE) latest interest rate decision. With GBP investors fearing this might place more pressure on the bank to start discussing when it will begin cutting interest rates.
Euro (EUR) Mixed ahead of ECB Interest Rate Decision
The Euro (EUR) is muted today, trading higher at the start of today’s European session before slipping against some of its stronger peers.
This uneven trade comes ahead of tomorrow’s highly awaited European Central Bank (ECB) interest rate decision.
EUR investors appear reluctant to alter their position in the single currency ahead of the ECB’s rate decision. Leading data such as the Eurozone’s industrial production figures to have limited impact on the Euro.
October’s figures reported a 0.7% contraction in industrial production, versus the 0.3% contraction that was forecast, and may have otherwise placed more pressure on EUR exchange rates.
Pound Euro Exchange Rate Forecast: BoE and ECB Decisions in the Spotlight
Looking ahead, both the BoE and ECB are set to deliver their respective interest rate decisions tomorrow.
In terms of the BoE, the bank is expected to leave its monetary policy untouched, while also maintaining its view that interest rates will need to remain higher for longer, with Sterling potentially firming if it explicitly pushes back against rate cut speculation.
Matthew Ryan, head of market strategy at global financial services firm Ebury, predicts:
‘We expect the Bank of England to hold rates steady for the third straight meeting on Thursday, with the MPC to once again stress that it is too soon to even think about the possibility of policy easing. We think that markets are getting carried away with the extent of policy easing that will be required in 2024.’
However, with UK’s economy seemingly weakening, is there a possibility the BoE could strike a more dovish tone.
Similarly, the ECB is also poised to deliver its interest rate decision tomorrow.
The ECB is also expected to keep rates on hold this month. However, there is considerable speculation the bank may already be discussing when it might begin loosing its policy. If the ECB confirms rate cut talks have begun the Euro is likely to nosedive.