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Fears UK has Slipped into a Recession Leaves Euro Pound Sterling (EUR/GBP) Exchange Rate Muted

July 22, 2019 - Written by John Cameron

Euro Pound (EUR/GBP) Exchange Rate Flat as Chaotic No-Deal Brexit to Cause ‘Severe Downturn’

The Euro Pound Sterling (EUR/GBP) exchange rate was left flat and the pairing is currently trading at an inter-bank rate of £0.8980.

On Monday, the National Institute of Economic and Social Research (NIESR) released a new set of gloomy forecasts.

The think tank revealed that the planned exit from the European Union may have already caused the UK to fall into a technical recession.

In the case of a chaotic no-deal Brexit, the UK would suffer a ‘severe downturn’ and even if the UK left the EU in an orderly fashion, the economy would stagnate in 2020.

Commenting on a no-deal Brexit, Director of NIESR, Professor Jagjit Chadha stated:

‘However we look at it, there will not be much economic joy in a no-deal Brexit.’

Sterling sentiment was left dampened and in its assessment of the economy, NIESR noted:

‘The outlook beyond October, when the United Kingdom is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit.’

Euro (EUR) Flat as Tensions Between Italy’s League and 5-Star Movement Increase

The single currency remained under pressure as investors braced for a showdown between the Italian coalition government.

Tensions between the far-right League and anti-system 5-Star Movement have increased as each accused each other of bad faith and betrayal.

Leader of League, Matteo Salvini warned he would quit the government unless 5-Star dropped its opposition to projects close to League’s heart.

However, it has been noted that the confrontational tone may be used to extract greater concessions during upcoming budget discussions.

Rates Strategist at Rabobank, Matt Cairns noted:

‘We are less convinced that the coalition may be about to collapse, that is because Salvini knows he has a strong hand and that is what he is trying to exert currently with the Prime Minister and [coalition partner] Luigi di Maio.’

Euro (EUR) Under Pressure Ahead of ECB Meeting

This Euro remained under pressure at the start of this week as investors hoped the European Central Bank (ECB) would give its clearest signal of policy easing on Thursday.

The ECB meeting is expected to reveal its clearest signal yet, if not details of the policy.

Policymakers have hinted they are prepared to increase stimulus due to fears investors are losing confidence that the ECB will be able to bring inflation back towards its goal.

It is expected that there will be a potential change in the bank’s rate guidance which would then pave the way for an interest rate cut by September.

Euro Pound Outlook: Will Disappointing Eurozone Consumer Confidence Weigh on EUR?

Looking ahead to Tuesday, the Pound (GBP) could slump against the Euro (EUR) following the release of the Bank of England’s (BoE) FPC meeting minutes.

If the Financial Policy Committee minutes reveal that policymakers are considering an interest rate cut in 2019, it could weigh on the Pound.

Meanwhile, the single currency could slide following the release of the bloc’s flash consumer confidence.

If confidence slumps further than expected in July, the Euro Pound Sterling (EUR/GBP) exchange rate could slide.

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