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Pound Euro Exchange Rate News: GBP/EUR Fluctuates amid UK’s Bleak Economic Outlook

December 2, 2022 - Written by John Cameron

GBP/EUR Exchange Rate Fluctuates as Cost-of-Living Crisis Pulls Focus



The Pound to Euro (GBP/EUR) exchange rate has been trading in a broad range today, hindered by downbeat domestic headlines.

At time of writing the GBP/EUR exchange rate traded at around €1.1678, which is up roughly 0.3% from Friday’s opening levels.

Pound’s (GBP) Potential Capped by Deepening Economic Crisis



The Pound (GBP) found its upside limited on Friday as a lack of significant data continued to hinder movement. As such, GBP investors focused on domestic headlines.

Friday morning saw the GBP/EUR exchange rate trade erratically. This was due to hopes of a solution to the Northern Ireland Protocol, which has been hindering trade between the UK and EU since Brexit.

However, this was soon overshadowed by the UK’s cost-of-living crisis and recession fears. As Christmas approaches more businesses are feeling the pinch caused by cautious UK consumers. Spurred on by rising food and electricity costs, the public is spending less money this holiday season.

The Chief Executive of Retail Economics, Richard Lim, has said the situation is creating a ‘perfect storm for retailers’ who are struggling as inflationary pressures continue to rise.

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He commented:

‘For many retailers, they’re caught out with too much stock…Demand has taken a significant hit and inflation has risen much more quickly than expected.’
Many retailers are hopeful that the Christmas rush may boost foot traffic and sales. However, if businesses continue to report falling sales in the new year, then this could signal that the UK is edging towards a long, bleak recession.

Euro (EUR) Muted despite Encouraging ECB Comments



Meanwhile, the Euro (EUR) struggled to gain support on Friday, despite encouraging comments made by European Central Bank (ECB) President Christine Lagarde.

During overnight trade Lagarde reiterated the central bank’s desire to tackle rising inflation. The bank’s target is 2%, but inflation is currently at 10%, putting strain on the Eurozone economy. During her speech Lagarde said:

‘What we central bankers have to do is deliver a monetary policy that anchors expectations. We need to signal to the public, to the observers, to the commentators, that in all scenarios, inflation will return to our medium-term target in a timely manner.’

Whilst these hawkish comments offered a positive undercurrent for the Euro, the expectation of further interest rate hikes wasn’t enough to lift the single currency. The larger-than-expected slowdown in Eurozone inflation earlier in the week kept a tight lid in ECB rate hike bets.

It’s possible that news from Ukraine also weighed on EUR movement on Friday. Russia continues to launch deadly attacks on civilian and energy infrastructure, with Ukrainians facing a challenging winter ahead.

Also, troubling EUR investors was Vladimir Putin’s statement that the west’s refusal to acknowledge annexed Ukraine territories as Russian was a barrier to peace talks. As geopolitical tensions in Europe continue to rise, the Euro was left with little support.

GBP/EUR Exchange Rate Forecast: Eurozone Data to Weigh on the Euro?



Looking ahead to next week, the Pound Euro exchange rate could be driven key Eurozone data.

On Monday the bloc’s retail sales figures and services PMI are due to print.

If retail sales print as expected, then the Euro could face headwinds. Sales figures are expected to fall by 1.7% in October.

The UK is also expecting its final services PMI on Monday. Figures are expected to remain the same at 48.8, which could reduce rising economic woes. However, if the results come in better than expected like the UK's final manufacturing PMI flash, then the Pound could climb.

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