Pound Euro (GBP/EUR) Exchange Rate Rangebound as UK Retail Sector Struggles with Recession

November 25, 2022 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound as UK Retail Sector Struggles with Recession

Pound Euro (GBP/EUR) Exchange Rate Narrows as UK Retail Sector Struggles

The Pound Euro (GBP/EUR) exchange rate traded flatly on Friday, as the UK retail sector began to struggle with the recession and cost-of-living crisis gripping the country.

At the time of writing, GBP/EUR traded at around €1.1636, and showed little movement from Friday’s opening rates.

Pound (GBP) Struggles as UK Retail Sector Outlook Darkens

The Pound (GBP) endured mixed trade on Friday, as the cost-of-living crisis and recession served to darken the outlook for the UK’s retail sector.

Despite Black Friday bringing a boon to sales, UK households were expected to spend more for less products as inflation and the ever-present cost-of-living crisis impacted consumer spending.

The sales are of huge importance to retailers as the UK continues to grapple with a potentially year-long recession, with the businesses hoping to generate enough income to prevent insolvencies in the year ahead.

This was explained further by Owen Bassett, the Retail Expert and Underwriter Manager at Atradius. He stated: ‘Businesses will be hoping to utilise Black Friday promotions as an opportunity to clear through excess stock that they are holding onto and generate cash in order to improve their prospects for the year ahead. After a relatively subdued period for retail insolvencies due to lasting Covid-19 government support, we’re seeing numbers creep up, and if retailers fail to effectively manage their inventory and supply chain, we could be faced with an influx of insolvencies in the sector in the Q1 of 2023.’


Further limiting Sterling’s appeal on Friday was the continuing industrial action throughout the UK. With Royal Mail workers on strike, NHS workers also announced plans for strikes in December. This adds to the growing number of workers in the UK who are striking to secure better contract terms and inflation matching pay rises.

With little sign of the strikes abating, Sterling could slip as the UK’s economy continues to struggle with a lack of workers and inflation.

Euro (EUR) Sees Uptick as German GDP Growth Surprises

The Euro (EUR) is seeing small gains against some peers today, as German GDP data painted a mixed picture.

Both QoQ and YoY final prints for German GDP increased by 0.1% over initial readings, leading to modest support for the single currency, as the largest economy within the bloc remains in growth. Furthermore, Germany’s moves to support energy costs served to alleviate fears of a fuel crisis over the winter.

Further bolstering the Euro on Friday may have been continued bets from investors that the European Central Bank (ECB) would continue with it’s aggressive tightening policy. Thursday’s release of the ECB’s meeting minutes showed that further rate hikes were likely despite the increasing threat of a recession in the Eurozone.

The report stated: ‘To stress the Governing Council’s commitment to achieving its medium-term inflation target, it was seen as important to indicate that interest rates were expected to be raised further in order to guard against the risk of inflation expectations becoming unanchored.’

Pound Euro (GBP/EUR) Exchange Rate Forecast: EU Inflation to Dent EUR?

Looking to the coming week for the Euro, Tuesday brings the latest inflation data for Germany. As the bloc’s largest economy, the forecast of a fall from 10.4% to 10.3% may point to wider signs of inflation peaking. As such, this could weaken the single currency as investors pare back interest rate hike bets.

The Euro may weaken further on Wednesday, with the latest Eurozone inflation rate expected to show a similar drop from 10.6% to 10.4%. Should this release print as forecast, EUR may weaken further in conjunction with the expected fall in German inflation.

For the Pound, data is relatively scarce for the coming week. As such, Sterling may trade on domestic news. If the recession continues to weigh heavily upon retailers and the private sector, and industrial action continues to increase, GBP may weaken.

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