Pound Euro (GBP/EUR) Exchange Rate Climbs as UK Dodges 2022 Technical Recession

February 10, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Climbs as UK Dodges 2022 Technical Recession

Pound Euro (GBP/EUR) Exchange Rate Rises Despite Above-Forecast UK GDP Contraction

The Pound Euro (GBP/EUR) exchange rate climbed on Friday. Better-than-expected growth data for the UK bolstered the pairing. Figures indicated that the UK avoided a technical recession in 2022.

On the other hand, an above-forecast contraction in the UK’s economy in December capped gains for GBP/EUR.

At time of writing the GBP/EUR exchange rate was at around €1.1314, which was up roughly 0.3% from that morning’s opening figures.

Pound (GBP) Gains as UK Misses Technical Recession in 2022

The Pound (GBP) firmed on Friday. Sterling saw muted gains amid a mixed market mood, however.

GBP saw the greatest pressure from an above-forecast contraction in the UK’s economy at the end of 2022. December’s GDP figures fell by 0.5% versus the forecast drop of 0.3%.

On the other hand, the latest GDP growth figures lent support to the Pound. Whilst growth in 2022’s fourth growth stagnated, the data indicated that the UK managed to avoid a technical recession last year.

Deloitte economist Debapratim De said:

‘The UK avoided a recession last year but by the slimmest of margins. Going by recent data revisions, today's figures could well be revised downwards in a few months, painting a very different picture.’

The overall outlook for the UK remained grim, however. Economists anticipated further contractions in growth in the opening months of 2023 as well as a worsening cost-of-living crisis.

Euro (EUR) Drops amid Signs of Cooling Inflation

The Euro (EUR) slumped against its peers on Friday despite a retreat of global risk appetite. Signs of easing inflation in the Eurozone weighed on EUR.

The pullback in bets on EUR came after weaker-than-expected German inflation data on Thursday. January’s inflation rose to 8.7% versus a forecast rise of 8.9%.

EUR was underpinned by persistent bets on further interest rate hikes from the European Central Bank (ECB), however. Hawkish comments from ECB policymakers continued to bolster expectations of further action from the central bank.

The Euro also saw losses from further escalation in the Russia-Ukraine war. On Friday, Moldova summoned Russia’s ambassador amid claims that Russian missiles had entered its airspace en route to Uraine.

GBP/EUR Exchange Rate Forecast: Will UK Core Inflation Rise Bolster Pound?

Looking to coming week for the Pound, employment data on Tuesday will likely prompt movement in the currency. December’s unemployment is forecast to remain unchanged from November’s reading. Average earnings are also expected to remain the same as previous readings. Investors could take the figures as indicators of a tight labour market. This could foster speculation of further action from the Bank of England (BoE) and boost the Pound.

Wednesday’s inflation figures could see Sterling pare any potential gains, however. January’s headline inflation is expected to tick lower which could prompt a pullback in best on further BoE rate hikes.

On the other hand, core inflation is expected to climb to 7% in January. If the data prints as expected, it could keep BoE bets buoyed and bolster the Pound.

Finally for GBP, a further drop in retail sales in January could pull Sterling lower if the figures print as forecast. The pace of the downturn is expected to slow however, which could help to cushion potential losses.

For the Euro, Monday’s meeting of the Eurogroup could provide impetus for the Euro if it provides any hints of future financial policy.

On Tuesday, the second reading of fourth quarter GDP growth is expected to confirm a slight expansion in the Eurozone’s economy. The data could provide a boost to EUR, although the weaker pace of expansion could keep any gains limited.

Also on Tuesday, a forecast uptick in employment levels could weigh on EUR if it points to a cooling labour market in the trading bloc.

Finally for the single currency, a predicted widening of the Eurozone’s trade deficit could pull the Euro lower. December’s deficit is expected to widen to €-30.8bn.

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TAGS: Pound Euro Forecasts