Euro Pound (EUR/GBP) Exchange Rate Sours on Economic Uncertainty
The Euro Pound (EUR/GBP) exchange rate slumps as fears over the economic outlook for the Eurozone were met with a cheery market mood, supporting the riskier Pound.
At time of writing, the EUR/GBP exchange rate is around £0.8521, a 0.22% fall from this morning’s opening levels.
Euro (EUR) Undermined by German Economic Weakness
The Euro (EUR) is struggling against many of its peers today as uncertainty surrounding the monetary policy of the European Central Bank (ECB) weighed on investors’ minds.
Furthermore, with concerns over Europe’s largest economy in Germany mounting, the overall health of the Eurozone is called into question. Producer price inflation (PPI) in Germany fell more than expected yesterday. This caused more headaches for the ECB in their stance on tightening.
The German bank Bundesbank warned that the German economy is likely to stagnate in the third quarter of 2023, echoing the grim predictions from the International Monetary Fund (IMF) that Germany will be the only major advanced economy to shrink this year.
Pound (GBP) Shrugs off Factory Woes
Meanwhile, the Pound (GBP) is managing to ignore downbeat data and is finding renewed strength against some of its rivals on Tuesday.
The latest Confederation of British Industry (CBI) survey revealed that factory orders slumped again, this time hitting the lowest reading since September 2020. Despite further contractions in the manufacturing sector, the future looks somewhat brighter, as Martin Sartorius, CBI economist, commented:
‘With output volumes contracting at their fastest pace since the COVID-19 pandemic and order books deteriorating, this survey makes for gloomy reading. However, easing price pressures will bring some relief to many manufacturing firms and the broader economy.’
However, further headwinds preventing further gains for the Pound are lingering concerns over a looming recession. Despite GBP investors buoyant on further tightening from the Bank of England (BoE), concerns remain. The negative impact surging borrowing costs will have on the economy could see Sterling slide further.
Euro Pound Exchange Rate Forecast: Downbeat PMIs to Weigh on Sterling?
Looking ahead, the Euro Pound exchange rate could see further fluctuations if PMIs print to forecast. The Pound could lose momentum and slide if both the manufacturing and services sector weaken as expected. The more concerning of the two, however, will be the services PMI. The key sector which edges ever closer to the divide between contraction and expansion of 50. Services PMI is expected to slip to 51, a fourth straight month of weakening activity.
Meanwhile, the Euro could also encounter further selling pressure. All four readings across both the Eurozone and Germany are predicted to slide. Further evidence of the Euro area economy weakening could dent the Euro on slashed rate hike bets.
