Pound Euro (GBP/EUR) Exchange Rate Weakens as Risk-Averse Market Supports EUR

November 28, 2022 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Weakens as Risk-Averse Market Supports EUR

Pound Euro (GBP/EUR) Slides as Risk-Averse Market Supports Euro

The Pound Euro (GBP/EUR) exchange rate weakened on Monday, as risk-averse market sentiment served to boost the safer Euro against the Pound.

As such, the GBP/EUR exchange rate fell to around €1.1537, a drop of nearly 0.8% from Monday’s opening rates.

Euro (EUR) Buoyed by Risk-Off Trade

The Euro (EUR) strengthened against most peers on Monday, as risk-averse trade served to support the safer currency.

With a spate of rare protests kicking off across China as residents grow tired of the country’s zero-Covid policy, markets have shifted to risk-aversion, prompting safer currencies such as the Euro to see support.

Stephen Innes, Managing Partner at SPI Asset Management explored the impact this could have in the coming months. He stated: ‘Social discontent could increase in China over the coming months testing policymakers’ resolve to stick to the COVID zero mandates. And since China’s economy is currently in a tug-of-war between weakening macroeconomic fundamentals and increasing reopening hopes. Mass protests would deeply tilt the scales in favour of an even weaker economy and likely be accompanied by a massive surge in Covid cases, leaving policymakers with a considerable dilemma.’

Further supporting the Euro on Monday was a weakening US Dollar (USD). While the risk-off trade served to buoy the ‘Greenback’ somewhat, falling US treasury yields and bets of lower interest rate hikes from the Federal Reserve mollified USD. As the pairing shares a negative correlation, this helped the Euro make strong gains.


However, comments from European Central Bank (ECB) policymakers may have served to cap the Euro from making further gains.

ECB Policymaker Peter Kazimir highlighted that the ‘risk of a recession’ in the Eurozone was growing, which may have kept investors cautious.

Pound (GBP) Mixed as Danske Bank Forecasts Dour UK Economic Outlook

The Pound (GBP) saw mixed trade on Monday. Despite making strong gains against riskier currencies in the risk-averse market mood, GBP saw its gains capped.

Danske Bank released their monthly report on the state of various economies around the world. In this report, the Bank forecast that the UK would see negative GDP growth for four consecutive quarters, adding to the pressures of the recession.

The report stated: ‘The Q3 GDP figure marked an official start of the recession in our view, as the economy is likely to weaken further. We expect negative GDP growth for four consecutive quarters and growth not to return until the fourth quarter of 2023. We now see the economy contracting by 0.7% in 2023 followed by a modest 0.8% growth in 2024.’

Elsewhere, a lack of macroeconomic data on Monday left the Pound to trade largely on market sentiment. Investors have been largely supportive of the Pound, with previous data releases such as last week’s PMIs giving hope for a shallower recession.

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

Looking ahead for the Euro, Tuesday and Wednesday bring two key inflation readings for the bloc. On Tuesday, German inflation data is forecast to print a fall from 10.4% to 10.3%, while Wednesday’s EU inflation data is expected to show a fall from 10.6% to 10.4%.

With the bloc’s largest economy, and the EU as a whole, forecast to see inflation easing, the single currency may weaken as rate hike bets from the European Central Bank (ECB) diminish.

Throughout the week, ECB policymakers are due to give speeches, beginning with President Christine Lagarde on Monday afternoon. Investors will keep a close eye on these speeches, hoping for any hawkish rhetoric to bolster rate hike bets.

Similarly, Bank of England (BoE) policymakers are scheduled to speak throughout the week. Should they continue to strike a dovish tone, the Pound may weaken.

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TAGS: Pound Euro Forecasts