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Pound Euro Exchange Rate News: GBP/EUR Rangebound as a Risk Off Sentiment Prevails

May 9, 2022 - Written by John Cameron

GBP/EUR Muted amid Risk Off Mood

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today as UK recession fears spark a risk off sentiment.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1688, with minimal movement from today’s opening levels.

Pound (GBP) Subdued amid Recession Fears

The Pound (GBP) is muted against the Euro (EUR) today amid growing concern over the UK’s economic trajectory.

Notable bleak economic forecasts from the Bank of England (BoE) have stoked fears the UK is headed toward a recession.

This comes amid rising energy costs and surging inflation, with BoE warning inflation may reach 10% before the end of the year.

Concerns over the impact of the UK’s cost of living crisis has been stoked by data showing China’s lockdowns have caused the country’s export growth to fall to a two-year low.

In turn, this has hit factory production and intensified supply chain bottlenecks.

Moreover, Sinn Fein’s victory in the elections in Northern Ireland have revived Brexit concerns.

The UK Deputy Prime Minister, Dominic Raab, has vowed to take ‘whatever measures are necessary’ to resolve issues surrounding the Northern Ireland’s Brexit protocol.

The UK government maintains that all options – including scrapping certain elements of the deal – remain. Should a deadlock occur, it may increase tensions between the UK and the EU and disrupt trade.

In addition, a prevailing risk-off mood is also sapping GBP demand this morning.

Euro (EUR) Directionless as Eurozone’s Investor Confidence Slumps

The Euro (EUR) is flat against the Pound (GBP) today amid a disappointing performance in the Eurozone’s Sentix Investor Confidence.

For the third consecutive month, Eurozone investor confidence dropped, with the index hitting the lowest point since June 2020.

In May, the confidence index fell to -22, slipping from -18 in April, falling further than the market expectations of -20.8.

This has amplified recession concerns across the bloc as the Russia-Ukraine war continues.

Sentix stated:

‘War only knows victims. The traces of the Ukraine conflict are also becoming increasingly visible in the economy.

‘The sanctions against Russia are having an effect, on enemies and friends alike. Last month, the “first mover” economic index clearly pointed the way towards recession.

‘At the beginning of May, the downturn deepened further. Europe is hit particularly hard. The overall Eurozone index drops to -22.6 points.’

GBP/EUR Exchange Rate Forecast: Deterioration in German Economic Sentiment to Weaken the Euro?

Looking ahead, the Pound Euro exchange rate could strengthen on Tuesday with the publication of Germany's latest ZEW economic sentiment index.

Analysts predict another morale in the Eurozone’s largest economy will have deteriorated again this month, likely limiting demand for the single currency.

Furthermore, EUR exchange rates are likely to be impacted by a speech from European Central Bank (ECB) President, Christine Lagarde.

Should Lagarde strike a dovish tone on Wednesday, it may place pressure the Euro.

Similarly, later this afternoon, notoriously hawkish BoE policymaker, Michael Saunders, is scheduled to deliver a speech.

If Saunders strikes a more cautious tone, echoing the attitude of BoE Governor, Andrew Bailey, it may place additional strain on the Pound.

On the data front, many GBP investors are awaiting the UK GDP release, scheduled for Thursday. If the UK’s GDP for the first quarter slips from 1.3% to 1%, as forecast, it may weaken GBP exchange rates.

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