Euro Pound (EUR/GBP) Exchange Rate Trades Narrowly amid Eurozone Recession Fears
The Euro Pound (EUR/GBP) exchange rate is trending sideways today. Fears of a Eurozone recession as well as low business confidence are likely pulling the currency pair lower. Additionally, a surprise rise to British retail sales figures could be prompting losses in EUR/GBP.
On the other hand, better than expected Eurozone inflation figures could be limiting losses for the pair.
At time of writing the EUR/GBP exchange rate is at around £0.8442, virtually unchanged from this morning’s opening figures.
Euro (EUR) Falls as Business Confidence Hits Lowest Point since June 2020
The Euro (EUR) is slipping against its rivals today. Eurozone recession fears may be pushing the single currency lower today as well as a risk-on market mood.
A fall in German business sentiment today may also be causing EUR to fall. August’s reading of 88.5 is the lowest since June 2020 as the war in Ukraine, the energy supply crisis, and recession fears weighs heavily on confidence.
Economists sought to cool any optimism however, with many forecasting a recession for the trading bloc’s largest member in the third quarter of 2022.
Investment bank UBS said:
‘Given the prospects of further significant energy price increases across the Eurozone – particularly in Germany – and the marked decline in the PMIs in July/August, we now expect the Eurozone to suffer negative q/q growth in Q3 and Q4 2022, followed by modestly positive growth in Q1 2023.’
The final reading of Germany’s second quarter inflation figures may be helping to underpin the Euro today, however. The German economy grew by 0.1% in the second quarter of 2022, beating a forecast contraction.
Pound (GBP) Firms as Retail Sales Surprise to the Upside
The Pound (GBP) is trending higher against many of its rivals today amid a risk-on market mood. News of drastic economic stimulus measures from the Chinese government has likely inspired the return of risk appetite.
A surprise boost to UK retail sales in August could also be lending support to Sterling today. The Confederation of British Industry’s (CBI) distribute trades figures for August rose to 37 versus a forecast fall to -7. Economist signalled that emergency cost-of-living grants in July may have contributed to the upswing.
Despite the growth, the CBI’s survey found that retailers remained downbeat about future growth.
Martin Sartorius, a principal economist at the CBI, said:
‘This gloom is reflected in retailers’ investment intentions, which continue to be resolutely negative.’
The currency could also be pushed higher today by bets on aggressive interest rate hikes from the Bank of England (BoE). Markets are pricing in the possibility that interest rates could hit 4% by spring 2023. Soaring inflation is expected to force the BoE to act quicker than first thought.
EUR/GBP Exchange Rate Forecast: Will Poor Consumer Confidence Increase Eurozone Recession Fears?
Looking to the remainder of the week for the Euro, a drop in German consumer confidence could weigh on the single currency if Friday’s figures print as forecast.
Additionally, a speech from European Central Bank (ECB) policymaker Isabel Schnabel could influence investor sentiment over the weekend.
The Pound will see no further significant data this week. Sterling could be affected by any changes in risk appetite. Friday’s lifting of the energy price cap may also affect GBP. The impact of high energy costs on UK households could weigh on the currency.
