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Pound Euro Exchange Rate News: GBP/EUR Softened amid Darkening UK Economic Outlook

August 9, 2022 - Written by John Cameron

Pound (GBP) Weakened on Bleak Economic Outlook



The Pound (GBP) dropped to fresh two-week lows as investors remain cautious after the Bank of England’s (BoE) bleak economic outlook. Political volatility also continues to weigh on the Pound as the race enters its final month before the next Prime Minister is announced.

Despite a modest boost from the British Retail Consortium (BRC) who reported that retail sales surprisingly rose 1.6% YoY for the month of July. The hot weather saw a surge in summer clothing, picnic supplies and fans. However, analysts warn that this could be the ‘lull before the storm’ as an increase in sales due to inflation was countered by a drop in sales volumes.

Helen Dickinson, Chief Executive of the BRC said that this summer has been difficult for retailers and consumers, and commented:

‘Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation.

‘The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households. This means that both consumers and retailers are in for a rocky road throughout the rest of 2022.’

The cost-of-living is set to worsen, and with energy bills set to hit £4266 from January, the UK could face an ‘impending disaster’. According to the Joseph Rowntree Foundation (JRF), an anti-poverty organisation, says that unless the UK government acts swiftly then UK’s households could be under intense pressure. Peter Matejic, Chief Analyst at JRF, said:

‘The latest projections of annual energy bills exceeding £4,200 from January is the latest in a series of terrifying warnings over the past week, from the Bank of England and others. Families on low incomes cannot afford these eye watering sums and as a nation we can’t afford to ignore an impending disaster.’

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With Liz Truss and Rishi Sunak battling it out to replace Boris Johnson as Prime Minister, investors are concerned that neither of them have shown enough to prove they could steer the UK out of economic turmoil. Both Truss and Sunak have outlined numerous fiscal plans to combat the escalating crisis but almost all of which have been met with fierce criticism, from both within their own parties and experts.

With continued political uncertainty and a lack of substantial action from the UK government to tackle the cost-of-living crisis, the Pound could remain under pressure.

Euro (EUR) Rallied Despite Mounting Recession Fears



The Euro (EUR) found moderate strength against most of its peers today despite the growing economic concerns around the Euro area.

A study from the Institute for Employment Research (IAB) has revealed that Germany, Europe’s largest economy, is set to lose over €260Bn in value due to the protracted war in Ukraine and soaring energy prices. The study went on to say:

‘Germany’s price-adjusted GDP will be 1.7% lower next year and there will be about 240,000 fewer people in employment. The employment level is expected to stay at around this level until 2026.

‘If energy prices, which have so far shot up by 160%, were to double again, Germany’s 2023 economic output would be almost 4% lower than it would have been without the war.’

Elsewhere, reports of Russia suspending oil exports from the southern section of the Druzhba pipeline. Gazprombank has since said that due to Western sanctions had stopped a payment from Moscow for the transit fee. Oil prices surged by more than a $1 a barrel on the news. The potential energy crisis to hit the Eurozone by the winter is likely to weigh on the Euro.

GBP/EUR Exchange Rate Forecast: Weakening UK GDP Data to Weigh Further on Sterling?



With data remaining thin on the ground for the Pound this week, all eyes will be on the GDP growth data for the UK on Friday.

Elsewhere, inflation data for Germany will be released on Wednesday, and an expected softening of CPI could exert further downward pressure on the Euro amid prolonged fears of fragmentation.

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