Euro Pound Exchange Rate Plunged on Mounting Recession Fears
The Euro Pound (EUR/GBP) exchange rate is plummeting as global economic slowdown fears and the prolonged Ukrainian conflict has sapped demand.
At time of writing the EUR/GBP exchange rate is trading around £0.8757, over a 1% drop from this morning’s opening levels.
Euro (EUR) Subdued Despite Better-than-Expected Industrial Production
The Euro (EUR) struggled for demand today despite a considerable improvement in industrial production in the Eurozone. Rebounding from a 2.3% contraction for the month of July, industrial output grew by 1.5% in August.
But the underlying fears of a recession edging closer failed to buoy spirits. Andrew Kenningham, Chief Europe Economist at Capital Economics warned:
‘All the evidence suggests that euro zone industry is heading for a significant contraction in the coming months.’
However, the Ukraine invasion rattles on with no end in sight, souring investors’ moods. Putin’s recent illegal annexation of Ukrainian regions have seen Russia engage in the most intense airstrikes since the conflict begun in February.
Pound (GBP) Rallied Despite Myriad of Political and Economic Woes
The Pound (GBP) is enjoying a strong recovery against many of its rivals today despite a contracting economy and persistent political uncertainty.
GDP data for August showed the UK economy contracted 0.3% MoM, worse than an expected stagnation. A noticeable drop in manufacturing, as well as a downturn in the service sector, dragged the economy down. Yael Selfin, Chief Economist at KPMG, has warned that the UK is moving closer to an inflation:
‘The ongoing squeeze on household finances continue to weigh on growth, and likely to have caused the UK economy to enter a technical recession.’
Meanwhile, the Bank of England (BoE) have confirmed they will not be extending their bond-buying assistance beyond Friday’s deadline. Hopes of the central bank to continue their intervention if the markets remain volatile have now been quashed. The BoE said in a statement:
‘As the Bank has made clear from the outset, its temporary and targeted purchases of gilts will end on 14 October.
‘The governor confirmed this position yesterday and it has been made absolutely clear in contact with the banks at senior levels.’
Euro Pound Forecast: BoE Speech to Further Bolster the Pound?
Looking ahead, with little in the way of economic data, the Euro Pound exchange rate could fluctuate further. BoE policymaker Catherine Mann is set to speak later today. Comments on the central bank’s position on further interventions could inspire movement.
Elsewhere, any further developments out of Ukraine will weigh on market sentiment, and in turn the Euro.
