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Pound Euro Exchange Rate News: GBP/EUR Slides amid Encouraging Eurozone Growth

July 29, 2022 - Written by John Cameron

The Euro (EUR) Rallies on Surprisingly Upbeat Economic Growth

The Euro (EUR) is firming despite higher-than-expected inflation. Encouraging economic growth data from around the Euro area is lending considerable support to the single currency.

A flurry of crucial data from around the Euro area threatened to sink the Euro as market forecasted a turbulent wave of negativity. Inflation for the Eurozone ticked up higher than anticipated as it soared to a record high of 8.9% in July. Against an expected 8.6%, surging food and fuel prices push the Eurozone towards a recession.

However, several countries posted better-than-expected GDP data, including economic growth in the Eurozone overall. Euro area GDP expanded by 0.7%, far above the 0.2% forecast. The strongest performance in three quarters has lent considerable support to the Euro. France and Italy both recorded a surprise uptick in growth, with the former registering a second consecutive quarter of growth.

Capping any further gains, is the concerning news out of Germany which saw their economy stall in the second quarter of this year. The war in Ukraine, supply restraints, and pandemic woes weighed heavy on Europe’s largest economy. The latest developments in the looming gas crisis paints a worrying future for Germany, and the Euro.

With Germany, along with the other member of states of the EU, will be looking at how to heat their homes and power their industries come winter. With Russia cutting gas supplies down to 20%, nowhere near the levels required to reach storage goals, a potential gas crisis will all but confirm a recession.

Pound (GBP) Slumps amid Worsening Cost-of-Living Crisis

The Pound (GBP) is struggling to find demand today as worrying lending figures further highlight the escalating cost-of-living crisis gripping the country.

Bank of England (BoE) released their consumer credit figures, showing that borrowing soared past £1Bn expectations and rose by £1.7Bn in the month of June. Surging at the fastest rate in three years, the cost-of-living crisis is forcing households to borrow more just to stay afloat. The figures remain elevated and sit above the 12-month pre-pandemic average.

With the UK’s cost-of-living crisis worsening, the economy is at risk of slowing even further. Pressure continues to build on the BoE to raise interest rates in order to tame inflation. Market analysts are expecting a bold 50bps rate hike at the Bank of England’s (BoE) meeting next week. As long as these expectations firm, the Pound could see its losses limited.

Meanwhile, the ‘summer of discontent’ is set to worsen as a growing number of industrial actions threaten to disrupt the country as BT are the latest to strike. The first strike since 1987 is underway by disgruntled workers at BT and Openreach, over pay disputes and working conditions. Dock workers in Felixstowe, the UK’s largest container port, have also planned walkouts for August.

GBP/EUR Exchange Rate Forecast: Hawkish BoE to Inspire the Pound?

With data remaining thin for the rest of the session, market sentiment will be the key driver of the Pound Euro exchange rate. As markets continue to react to the mixed data out of the Eurozone, the Euro could fall if investors become wary of Germany’s faltering economy and how it could impact the rest of the Euro area.

Meanwhile, mounting inflationary pressures could force the BoE’s hand in hiking rates aggressively, if a continued hawkish stance was upheld, Sterling could see a much-needed boost.

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