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Pound Euro Exchange Rate Falls as UK Economy Contracts in June

August 12, 2022 - Written by John Cameron



Pound Euro (GBP/EUR) Exchange Rate Falls Despite Risk-On Mood



The Pound Euro (GBP/EUR) exchange rate slumped on Friday amid poor data releases for the UK. Figures indicated a contraction in the UK economy in June as well as a large trade deficit. Above-forecast industrial production for the Eurozone likely also contributed to the pair’s losses.

At time of writing the GBP/EUR exchange rate was at around €1.1795, which was down roughly 0.2% from the morning’s opening

Pound (GBP) Slumps after Poor GDP Figures



The Pound (GBP) tumbled against its rivals on Friday after a figures showed a contraction in the UK’s economy in June. A widening of the UK’s trade deficit likely also added to Pound’s woes, as well the country’s cost-of-living crisis.

GDP for the month of June fell by 0.6%, down from 0.4% growth in May. The fall was less than anticipated which may have helped to temper some of Sterling’s losses. Better performance in the services sector likely helped to offset the impact of two bank holidays.

The figures ultimately added to the Bank of England’s (BoE) downbeat forecasts from the previous week, however. The BoE had forecast a recession for the UK economy in 2022, with economists now speculating that the UK was even closer to entering one.

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The National Institute of Economic and Social Research (NIESR) stated:

‘It now looks like the UK economy entered a recession in the second quarter of this year as GDP fell by 0.1%, and we expect output to continue falling over the next three quarters.’

Another significant trade deficit for the UK in June likely also weighed on Sterling on Friday. The UK saw a deficit of £11.387B, its largest since 1955.

Euro (EUR) Gains Against Pound despite Risk-On Mood



The Euro (EUR) slipped against some of its peers on Friday amid a recovery in the US Dollar (USD). Concerns over a potential Eurozone recession likely prompted headwinds for the single currency. The Euro saw gains against the Pound (GBP) however despite a risk-on market mood.

The Eurozone’s energy supply crisis likely kept the single currency on the defensive against many of its rivals. German power utility EnBW reported on Friday that reduced gas flows through the Nord Stream 1 pipeline caused a €545M hit to profits.

On the other hand, an above-forecast rise to Eurozone industrial production may have lent support to the Euro on Friday. Output grew by three times more than forecast owing to an increase in the production of machinery, vehicles, and tools.

GBP/EUR Exchange Rate Forecast: Will UK Inflation Data Prompt Further BoE Rate Hike Bets?



Looking to next week for the Pound, employment figures for Sterling on Tuesday could increase rate hike bets on the currency. If June’s unemployment rate stays low as forecast then it could support further rate hikes from the BoE.

Wednesday’s inflation data could have a mixed effect on the currency. High inflation could see bets on further interest rate hikes from the Bank of England could boost the Pound. On the other hand, concerns that soaring inflation could push the UK even closer to a recession could weigh on the Pound.

Retail sales figures on Friday could also dent confidence in GBP if they fall for a third consecutive month.

For the Euro, a predicted slip to German and Eurozone economic sentiment on Tuesday could see the single currency slip. Additionally, a widening of the Eurozone’s trade deficit may also weigh on EUR.

Wednesday’s GDP growth figures for the Eurozone could help to stem these losses, however. Second quarter growth is forecast to have recovered slightly.

The final reading of July’s inflation figures for the Eurozone could also help the Euro to climb on Thursday. The figures could help to increase bets on further interest rate hikes from the European Central Bank. If German PPI figures climb on Friday then the currency could see similar movements.



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