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Pound Euro Exchange Rate Trends Sideways after Eurozone Growth Forecasts Slash

July 14, 2022 - Written by John Cameron

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

The Pound Euro (GBP/EUR) exchange rate exchange rate is trading in a narrow range today. A lack of significant data has left currency at the whim of market sentiment. A risk-off market mood is likely capping gains for the exchange rate, as well as Brexit-related woes for Sterling. On the other hand, fears of a Eurozone recession could be underpinning GBP/EUR today.

At time of writing the GBP/EUR exchange rate is at around €1.1822, virtually unchanged from this morning’s figures.

Euro (EUR) Ticks Higher despite Cut to Growth Forecasts

The Euro (EUR) is making some moderate gains today although remains muted against its major peers. The single currency could be seeing a correction after overselling on Wednesday following EUR’s fall below parity with the US Dollar (USD). A risk-off market mood may also be limiting losses for the single currency.

Major gains for the Euro are likely to be limited by fears of an imminent Eurozone recession, however. The possibility of an energy crisis in Germany, the trading bloc’s largest member, has heightened these concerns this week.

German officials remain concerned that Russia could keep the Nord Stream 1 gas pipeline shut off following its period of annual maintenance. Analysts feel that Russia could make the move in response to Western sanctions over the war in Ukraine. Russia had already cut supplies through the pipeline by 40% in June.

The economic impact on Germany could be severe. Economists are predicting a €193B hit to the country’s economy if gas flows are halted.

A cut to Eurozone growth forecasts today may also weigh on the single currency. The European Commission (EC) announced earlier today that the war in Ukraine had prompted it to lower growth forecasts and revise up its inflation outlook.

Eurozone growth for 2022 is now predicted at 2.6% down from 2.7%, whereas growth for 2023 has been slashed to 1.4% from 2.3%. Inflation meanwhile is now forecast to peak in 2022 at 7.6%, up from the 6.1% predicted in May.

The Euro could be underpinned today by news that a block by Russia on Ukrainian grain exports is close to being resolved. Turkish officials have given reports that a deal between the two countries has been reached, and that an agreement is set to be signed next week.

Pound (GBP) Falls as NI Protocol Bill Clears Commons

The Pound (GBP) is slipping against many of its rivals today. A poor economic outlook for the UK could be weighing on the currency today. Despite Wednesday’s GDP figures indicating a return to growth in May, economists are expecting a sharp contraction in June and future months.

The leadership contest to replace Boris Johnson as Prime Minister may also be pushing the Pound lower today. Rishi Sunak and Penny Mordaunt emerged as the contest’s frontrunners after the first round of voting on Wednesday.

The candidates’ almost universal pro-Brexit stance may also be adding to headwinds for GBP over the Northern Ireland Protocol. Legislation introduced by the UK designed to alter the agreement passed through the House of Commons yesterday unchanged. Investors remain concerned at the prospect of a potential UK-EU trade war.

GBP/EUR Exchange Rate Forecast: Will Clear Frontrunner for UK PM Emerge?

Sterling is set to see no further significant data this week, the currency could continue to be dampened by Brexit-related headwinds. The leadership contest for the UK’s premiership could also continue to provoke uncertainty in the Pound.

The Bank of England’s (BoE) stance toward interest rate hikes could bolster the Pound if they lean toward a hawkish stance.

For the Euro, May’s Eurozone balance of trade figures could help to bolster the single currency if they print as forecast on Friday. The trading bloc’s trade deficit is expected to narrow.

Any further developments concerning Europe’s natural gas supplies could also cause movement in the Euro.

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