June 8, 2023 - Written by John Cameron
STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound amid EU Recession Confirmation
Pound Euro (GBP/EUR) Exchange Rate Rangebound amid EU Recession Confirmation
The Pound Euro (GBP/EUR) exchange rate traded within narrow boundaries on Thursday, as a downward EU GDP revision pointed to a recession in the bloc.
At the time of writing, GBP/EUR traded at around €1.1618, showing little movement from Thursday’s opening rates.
Euro (EUR) Capped by Downward GDP Revision
The Euro (EUR) saw its gains capped on Thursday, by a surprise downward revision in the Eurozone’s first quarter GDP data.
The third estimate was revised to reflect a 0.1% contraction, which indicated that the Eurozone had entered a technical recession.
The reason was considered to be due to downward revisions in German data. Bert Coljin, Senior Eurozone Economist at ING, explained: ‘The significant downward revision was mainly due to Germany revising down its numbers as new data came in. This fuels the idea that March activity was very weak, making a quick rebound in the second quarter unlikely. With May survey data being weak across the board, it is likely that we only get a modest uptick after the two quarters of downturn.’
Because of this, EUR investors may be more wary of additional tightening from the European Central Bank (ECB) as the bloc’s economy shows signs of slowdown.
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Elsewhere, hawkish sentiments from ECB policymakers may have served to further cushion EUR, as ECB President Christine Lagarde and Dutch ECB Chief Klass Knot made firm cases that inflation had yet to peak.
Furthermore, the Euro likely saw further support on Thursday due to its nature as a safer currency, which allowed it to remain afloat against other, riskier assets.
Pound (GBP) Mixed amid Signs of Cooling UK Labour Market
The Pound (GBP) saw mixed trade on Thursday, as elevated interest rate hike bets served to cushion Sterling, while indications of a cooling UK labour market dampened its appeal.
The Recruitment and Employment Confederation published a report earlier on Thursday which showed signs of slowdown in growth of starting salaries, which fell to its lowest levels since January 2021.
Furthermore, the REC’s gauge of staff demand was found to have fallen to a five month low, adding further indication that the UK’s labour market may be slowing down due to continued tightening from the Bank of England (BoE).
Clare Warnes, at KPMG UK, commented: ‘The jobs market remains subdued, with the latest survey results showing dampened hiring activity amid ongoing economic concerns. Overall vacancy growth slowed for the third month as businesses delayed hiring decisions, and permanent staff appointments fell for the eighth month in a row as many employers stick to temps.’
However, markets remain certain that the Bank of England will pursue a 25bps interest rate hike at their June meeting. These bets likely kept Sterling afloat, amidst a lack of other impetus for GBP investors.
Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB Speeches in Focus
Looking ahead for the Euro (EUR), European Central Bank (ECB) Deputy Governor Luis de Guindos is scheduled to deliver a speech on Friday which could provide some direction for EUR traders.
If de Guindos continues the bank’s consistently hawkish narrative towards inflation, the Euro could strengthen as investors make bets on further interest rate hikes.
Elsewhere, due to a lack of other data releases, market sentiment and dynamics against other currencies could shape the Euro. As a safer currency, a sour market mood could bring some strength for the common currency against riskier assets.
For the Pound (GBP), the data calendar is forecast to remain bereft of impactful data rleeases through to the end of the week. Because of this, trade is likely to remain in narrow boundaries for Sterling.
However, continued bets on further interest rate rises from the Bank of England may continue to cushion Sterling from any significant losses, as inflation remains a significant bugbear for UK households and businesses alike.
Furthermore, risk appetite would also impact Sterling, with the currency holding an increasingly risk sensitive nature. A shift to cheery trade could lift GBP above EUR.
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TAGS: Pound Euro Forecasts