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Pound Euro Exchange Rate News: GBP/EUR Wavers amid Rising Global Recession Fears

June 29, 2022 - Written by John Cameron

Pound (GBP) Fluctuates as Cost-of-Living Crisis Hints Further at Impending Recession

The Pound (GBP) strengthened modestly overnight but was soon found wavering as recession and Brexit pressures continue to weigh on Sterling.

Investors grew increasingly concerned about the fallout from the Northern Ireland protocol and the UK’s proposed change to the Brexit agreement. The bill has passed the first stages of parliamentary approval and is expected to be fast-tracked through the House of Commons. With the EU warning of legal action if the bill is passed, a potential trade war could break out, likely to weigh on the Pound.

Elsewhere, the soaring cost-of-living is exacerbating fears of a recession. UK shops have hit the highest prices since 2008 as surging prices for commodities, fuel, energy, and transport have reached the consumer.

Households are continuing to feel the squeeze as low-income families face rising financial stress. Katie Schmuecker, principal policy adviser for the anti-poverty charity Joseph Rowntree Foundation (JRF) warns:

‘Families up and down the country have been faced with options that are simple but grim: fall behind on bills, go without essentials like enough food, or take on expensive debt at high interest. In some cases they had to do all three.’

With the continuing cost-of-living crisis worsening as inflationary pressures soar, a looming recession weighs heavily on the Pound.

Euro (EUR) Wavers as Weakening Inflation could Inspire Dovish Turn from ECB

The Euro (EUR) is fluctuating further today as early German inflation data points to a potential weakening inflation across the Eurozone.

The German state of North Rhine-Westphalia has printed lower than expected inflation data as it fell 7.5% YoY in June from 8.1% the previous month. If Germany was to follow suit, it could dampen rate hike expectations from the European Central Bank (ECB).

Combined with a drop in economic sentiment across the Eurozone, piling further pressure on the Euro today is ECB Chief Economist Philip Lane warning of sustained higher inflation and an upcoming recession:

‘With the uncertainty, we have to manage the two risks. On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure.

“So it’s very much having a clear vision for the next couple of meetings, having an orientation to move away from the very low rates we’ve had for quite a few years, but also fully respecting the importance of being data-dependent.’

GBP/EUR Exchange Rate Forecast: Policy Divergence to Weigh on the Pound?

Looking ahead, with the ECB Forum coming to a close today, all eyes will be on key speeches from the Fed, Bank of England (BoE), and ECB as investors await the central bank’s strategies in combating inflation.

A potential policy divergence between them could concern investors as economists at Commerzbank warns of the tough job the BoE face:

‘Monetary policy remains a difficult balancing act for the BoE, also from a communication point of view.

‘It remains to be seen to what extent BoE Governor Andrew Bailey will be able to convince sterling investors in his speech at the ECB forum in Sintra today. It is unlikely to be an easy task though. As a result, it is likely to be difficult for sterling to appreciate against (the Euro) again.’

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