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Pound Euro Exchange Rate Tumbles as Eurozone Inflation Climbs to New Record

July 1, 2022 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Slides amid Risk-Off Market Mood

The Pound Euro (GBP/EUR) exchange rate is falling today after Eurozone inflation hit a new record high. The currency pair may also be struggling amid a risk-off market mood, as well as Brexit-related headwinds for Sterling.

At time of writing the GBP/EUR exchange rate is at around €1.1530, which is down around -0.7% from this morning’s opening figures.

Euro (EUR) Soars as Eurozone Inflation Hits Fresh Record High

The Euro (EUR) is climbing against the majority of its competitors today. Renewed demand for the US Dollar (USD) is sapping some of the single currency’s strength against its safer rivals, however.

EUR’s strength today comes after Eurozone inflation hit another record high in June. Figures showed that consumer prices leaped by 8.6% in June, up from 8.1% in May. The high rate is likely prompting renewed bets on the Euro amid expectations of multiple rate hikes from the European Central Bank (ECB). The current rate of inflation stands at four times the ECB’s target rate.

Speaking on the figures, Fawad Razaqzada of City Index and said:

‘This means the euro is going struggle to shine much even as the ECB has paved the way for aggressive 75 basis point rate hikes in July and September. Additionally, the fact that inflation has been diverging across the eurozone means the ECB will have a tough time with its anti-fragmentation tool and may make a bigger mess out of the whole situation.’

Major gains for the single currency could be limited by a fall to manufacturing sector growth across Germany and the Eurozone, however. The final reading of June’s PMI figures reflected rising prices across the sector and a downturn in order numbers.

Pound (GBP) Dips amid Brexit Tensions

The Pound (GBP) is dropping against many of its competitors today. Brexit-related headwinds could be weighing on the currency today. Additionally, reduced expectations for aggressive action from the Bank of England (BoE) may be limiting bets from investors.

This week has seen a number of data releases indicating Brexit’s negative impact on the UK economy. EU trade data released on Thursday indicated that UK exports to the EU fell by 14% from 2020 to 2021.

Speaking on the figures, EU Brexit Negotiator Maros Sefcovic said:

‘Brexit has increased red tape, not decreased it. It is no longer as frictionless and dynamic as before. This holds true for both goods and services.’

Polling conducted by Ipsos Mori may have also added to Sterling’s Brexit-related woes this week. The study found that 45% of Britons think Brexit has made daily life worse. The figures could be driving some of GBP’s losses today.

The UK government’s approach to the Northern Ireland Protocol may also be keeping pressure on the currency. Earlier this week, the UK government passed legislation through the House of Commons that would allow it to alter elements of the agreement.

GBP/EUR Exchange Rate Forecast: Will NI Protocol Tensions Continue to Grow?

Looking to the week ahead for Sterling, Monday’s final reading of June’s service sector PMI could push GBP higher if figures remain unchanged from May’s reading.

The Pound will see little other significant data next week. Any changes to risk appetite could prompt movement in the currency.

Further developments surrounding the Northern Ireland Protocol could also prompt movement in Sterling. It remains to be seen whether the UK government will seek to make further progress with any legislation, or return to the negotiation table.

For the Euro, a dip to Germany’s balance of trade on Monday could limit any gains for the single currency. The final reading of service sector PMIs for the Eurozone and Germany could also pull EUR lower with both expected to fall.

A forecast recovery to May’s retail sales on Wednesday in the Eurozone could help the Euro to recover some of its losses, however.

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