Pound Euro Exchange Rate News: GBP/EUR Plummets to 18-Month Low as Cost-of-Living Crisis Deepens

Modified: Friday, 16 September 2022 16:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Plummets to 18-Month Low as Cost-of-Living Crisis Deepens

GBP/EUR Exchange Rate Plunges as Poor UK Retail Data Shocks Investors

The Pound to Euro (GBP/EUR) exchange rate dropped on Friday as poor UK retail sales weighed on Sterling.

At time of writing the GBP/EUR exchange rate traded at around €1.1421, which was down roughly 0.3% from Friday’s opening levels.

Euro (EUR) Capped by Negative USD Correlation

The Euro (EUR) was up against the Pound on Friday, but was muted against most of its other peers, due to the Euro’s negative correlation with the US Dollar (USD).

The US Dollar rallied amid global growth fears, following a warning from the World Bank that higher interest rates are likely to trigger a recession.

This limited the Euro’s upside potential following the publication of the Eurozone’s latest consumer price index.

August’s finalised CPI figures confirmed a record 9.1% rise in Eurozone inflation, bolstering EUR investors' expectations for another aggressive interest rate hike from the European Central Bank (ECB) in October.


A Deutsche Bank analysts said in a note that:

‘It is likely to be another close call in October and we have shifted our view to expect another 75 bps hike’.

Also providing some modest support for the Euro on Friday was a drop in European gas prices. Prices fell around 5,7% amid reports that EU storage levels continue to rise, easing fears of shortages this winter.

Pound (GBP) Dragged to Fresh Lows by Shocking UK Data

The Pound plunged on Friday as poorer-than-expected retail data sunk GBP. This left the currency at a 37-year low against the US Dollar amid looming recession fears and the cost-of-living crisis.

The UK retail figures, which were forecast to print a 0.5% decline instead revealed a much larger 1.6% contraction. This left economists and investors unsettled as the data added to the bleak economic outlook that has been present throughout this week’s trade.

Olivia Cross, assistant economist at Capital Economics said on Friday that the UK ‘is already in recession’ and drew focus on the Bank of England (BoE).


‘Retail sales will probably continue to struggle as the cost-of-living crisis hits harder in the coming months. But nonetheless the Bank of England will still have to raise interest rates aggressively.’

The BoE is due to release their next interest rate decision next Thursday. Investors, reassured by the positive data seen throughout the week, are certain of a 75bps hike.

However, this expectation did little to shore up the Pound on Friday as it faced broad selling pressure.

GBP/EUR Exchange Rate Forecast: GBP to be Lifted by Rate Rise?

Looking ahead, to this week the Pound Euro exchange rate could become volatile as GBP investors await the BoE’s latest interest rate decision.

Investors are hopeful the central bank will increase the interest rate by 75bps to fall in line with other central bank’s recent aggressive hikes.

However, if the BoE keep following their current regime of 50bps hikes, then the Pound could face headwinds during the week.

September Flash PMI’s are also due next week and could inspire some movement if they print better than forecast.

German PPI data could boost the Euro and cause rate bets to increase amongst investors, if the data prints positively.

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TAGS: Pound Euro Forecasts