Euro Pound Exchange Rate is Wavering as Recession Fears Rise
The Euro Pound (EUR/GBP) exchange rate is fluctuating as economic concerns grip both the UK and the Eurozone, with recession risks on the rise.
At time of writing the EUR/GBP exchange rate is trading around £0.8584, relatively unchanged from this morning’s opening levels.
Euro (EUR) Pressured from Stuttering German Economy
The Euro (EUR) is struggling for a clear direction this morning as more downbeat data from Germany weighs heavily.
A worse-than-forecasted fall in industrial production in the Bloc’s largest economy also signalled the third straight month of contracting factory activity. The latest PMIs showed a 0.8% fall against an expected 0.5% in July. Carsten Brzeski, economist at ING, said of the deteriorating situation:
‘A stagnating economy in the second quarter after two quarters of contraction gave hope to some that the economy was improving. However, the full batch of hard macro data for July suggests that the risk of recession is high again.’
After yesterday’s 11.7% plummet in German factory orders, concerns are rising over the health of the country, a vital economy in the Eurozone.
Furthermore, the Eurozone’s third estimate of GDP growth was revised lower, and the Eurozone only expanded 0.1% in Q2. Mounting economic woes are weighing heavier on EUR investors as the single currency struggled for demand.
Pound (GBP) Undermined by Darkening Economic Outlook
Meanwhile, the Pound (GBP) still can’t catch a break as the flurry of downward pressures are keeping Sterling under wraps.
Without major economic data to go by, the Pound is languishing under the weight of economic burdens. A cautious Bank of England (BoE) speech yesterday is still weighing on GBP investors’ minds after Governor Andrew Bailey turned dovish. After confirming that inflation is finally coming down, he also mentioned that interest rates are now close to their peak.
Further pouring cold water on tightening expectations from the BoE, was policymaker Swati Dhingra, saying that the monetary policy is now ‘sufficiently restrictive’:
‘Policy is already sufficiently restrictive, and the lagged effects of further tightening pose serious risks of output volatility in order to make a small dent on inflation.
‘While each additional increase in Bank Rate intensifies the effect on currently exposed subsets of the economy – for example those rolling off fixed-rate mortgages – it takes time for the breadth of the effects to increase.’
With recession risks growing, and the BoE now nearing its terminal rate peak, Sterling remains under the cosh.
Euro Pound Forecast: Recession Risks to Keep Both Currencies Down?
Looking ahead, the Euro Pound exchange rate could be offsetting each other’s weaknesses as a lack of economic data could see both the Pound and Euro subdued.
Without any major economic data for either pairing, the Euro Pound exchange rate could remain quiet.