Euro Pound Exchange Rate Softens as Gas Shortages Threaten a Recession
The Euro Pound (EUR/GBP) exchange rate touched a two-month high before falling amid the deteriorating economic outlook for the UK. The looming energy crisis in the Eurozone continues to weigh heavy.
At time of writing the EUR/GBP exchange rate is trading around $0.8419, moderately unchanged from this morning’s opening levels.
Euro (EUR) Slipped on Energy Security Fears
The Euro (EUR) failed to drum up much support today amid persistent fears of an energy crisis. A moderately strong US Dollar kept a lid on any significant gains for the single currency.
Providing some moderate support to the shared currency is the printing of unemployment rate in the Eurozone. Remaining at a record-low of 6.6% unemployment in the Euro area, a resilient jobs market lends support to the Euro. Elsewhere, mixed PMI data failed to inspire the Euro. Manufacturing in the Euro area fell to 49.6, the second consecutive month of contraction.
Meanwhile, retail sales in Germany surprised investors and printed above forecasts. Expectations of stagnation in sales were met with a 1.9% increase MoM in July. YoY figures also printed better than expected and improved from an expected -6.5% drop in sales to print at just -2.6%.
Lending some moderate support to the Euro is the tumbling of wholesale gas prices as well as the reopening of the Nord Stream 1 pipeline after three days of maintenance. The European Commission confirmed they were working on options to cap energy prices and reduce electricity demand as soaring energy costs threaten to tip the Eurozone into a recession.
Pound (GBP) Quiet amid Gloomy Economic Outlook
The Pound (GBP) once again struggled against the backdrop of inflationary pressures, recession fears, and the worsening cost-of-living crisis. Without much hope on the horizon, Sterling could remain under pressure for some time.
The manufacturing sector fell sharply and contracted for the first time since May 2020, the height of the Covid pandemic as domestic and overseas demand both dropped. Manufacturing PMI slumped to 47.3, a substantial drop off from 52.1 in July, marking the fourth consecutive month of slowdown.
Meanwhile, further piling on pressure on the Pound is the looming energy crisis. The International Monetary Fund (IMF) released a damning report on how the UK is faring the worst out of western Europe. The country’s over-reliance on gas is the main driver for the price surge, and the UK’s poorest households are also set to feel the worst impact.
Euro Pound Forecast: Perpetual Gloomy UK Economic Outlook to Sink the Pound?
Looking ahead, with little in the way of economic data, the Euro Pound exchange rate could fluctuate further if the dire domestic situation in the UK doesn’t improve.
Elsewhere, the negative correlation the Euro enjoys with the US Dollar could slide on any further strength of the ‘Greenback’. With crucial jobs data to print tomorrow, and a quiet day for the Euro, a resilient US jobs market could see the Euro slide.
