Pound Euro Exchange Rate News: GBP/EUR Drops amid UK Inflation Shock

November 16, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Drops amid UK Inflation Shock

GBP/EUR Exchange Rate Stumbles as UK Inflation Hits 40-Year-High

The Pound to Euro (GBP/EUR) exchange rate dropped on Wednesday, spurred on by UK headline inflation rising to a new 40-year high.

At time of writing the GBP/EUR exchange rate traded at around €1.1417, down roughly 0.4% from Wednesday’s opening levels.

Pound (GBP) Falls as Higher Inflation Compounds Recession Woes

The Pound (GBP) was down against the majority of its peers on Wednesday as UK inflation printed hotter-than-expected.

In November, headline inflation rose by a full percent, from 10.1% to 11.1%. This shot past expectations of 10.7% and stoked recession fears amongst investors.

Economists are now concerned that the recession will be worse than the Bank of England (BoE) originally predicted. According to Jack Leslie, Senior Economist at the Resolution Foundation as inflation continues to outpace wage growth the poorest households in the UK will hit the hardest:

‘Rising energy bills and rapid food prices mean that low-income households now face an effective average inflation rate of around 12.5%, while in the cold winter months, the over 80s are already facing inflation rates of around 15.3% .’


Whilst rising inflationary pressures were undermining the Pound on Tuesday it’s possible that an undercurrent of increased rate hit bets limited GBP’s downside. GBP investors are hopeful that the inflation spike could inspire another aggressive interest rate hike at the BoE’s December policy meeting.

Euro (EUR) Upside Limited by Fears of War Escalation

The Euro (EUR) found some support on Wednesday, despite news that a missile had hit the Polish Ukraine border, killing two Polish farmers.

Originally the missile was thought to be Russian, however, reports now suggest that the missile was in fact Ukrainian. According to Reuters, a NATO source close to US President Joe Biden has said that Ukraine launched the missile in self-defence amid fresh air attacks from Russia on Tuesday.

This report has eased investors’ concerns that war between the Russia and Ukraine could be bleeding into other countries, which had the potential to put further strain on geopolitical tensions in the EU. As such, the Euro began to gain ground, although investors remained cautious.

Elsewhere, it’s possible that comments from European Central Bank (ECB) policymakers could also be supporting the Euro. Policymaker Ignazio Visco said on Wednesday that further interest rate hikes were clearly needed, and that going forward:

‘Monetary policy decisions in coming months must be based on data and facts, without prior decisions on the path to take’.


Although, this came with the caveat that the desire to become less aggressive with future interest rate hike was gaining support amongst board members.

GBP/EUR Exchange Rate Forecast: Autumn Statement to Drive GBP?

Looking ahead, the Pound Euro exchange rate could be driven by the release of the UK’s Autumn Statement on Thursday.

Chancellor Jeremey Hunt will be unveiling the Treasury’s austerity budget, consisting of planned tax increases and spending cuts. It is hoped that the plan will help stimulate growth within the UK economy, thus supporting consumers during the recession.

If investors react well to the statement, then the Pound could recoup some of its losses from Wednesday’s session. On the other hand, GBP could waiver if Hunt is seen as not providing enough adequate support to households.

Turning to the Euro, the Eurozone’s final inflation figures are due on Thursday. Forecasts are predicting that headline inflation will rise from 9.9% to 10.7% in October. If this is true, then the Euro could gain ground on the expectation of continued aggressive policy tightening from the European Central Bank (ECB).

In the meantime, a speech from Christine Lagarde could move the Euro on Wednesday afternoon. If she strikes a hawkish tone, this could further support

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