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Pound Euro Exchange Rate to Slide amid Growing Concerns of Looming Recession?

Pound Coin on Euro Banknote GBP/EUR

Pound Euro Exchange Rate Wavers as Economic Landscape Darkens

The Pound Euro (GBP/EUR) exchange rate is fluctuating today after inflationary pressures continue to mount, threatening to derail both the central bank’s hawkish plans to combat inflation.

At time of writing the GBP/EUR exchange rate is around €1.166, relatively unchanged from this morning’s opening levels.

Pound (GBP) Braces for Another Inflation Surge

The Pound may trade erratically this week as a flurry of key pieces of data are set to be released. The UK’s consumer price index is due to be printed on Wednesday with expectations domestic inflation will rise to 9.1% YoY for the month of May.

If inflation meets expectations, the Pound could see a boost as the Bank of England (BoE) will have to act more hawkish to rein in inflationary pressures.

On the other hand, soaring inflation could stoke concerns over the UK’s cost of living crisis and might fuel recession fears.

In the meantime, the Pound faces moderate headwinds as the BoE’s recent hawkish turn could be short-lived. With growing recession fears amid a tumbling stock market, the central bank may have to opt for a more gradual approach to raising interest rates.

Meanwhile, Brexit issues continue to weigh on the Pound as the Northern Ireland protocol situation drags on. Former NI secretary Peter Hain has accused Prime Minister Boris Johnson of using ‘Putinesque’ tactics in his attempt to unilaterally alter the agreement, much to the dismay of the EU.

Hain wrote: ‘Leave to one side that it trashes Britain’s reputation. That it reneges on the withdrawal agreement Johnson and his lieutenant David Frost negotiated with the European Union. Never mind that it breaks an international treaty the UK signed. Forget very old-fashioned notions of truth, sticking to your word, trust, and obeying international law.’

With a big week ahead of key data for the UK, the Pound could experience turbulent times. Retail sales are expected to have dropped, whereas manufacturing PMI is set to continue its moderate expansion MoM, potentially capping any further losses.

Euro (EUR) Set to Slide with Dovish ECB?

The Euro is wavering today as European Central Bank (ECB) President Christine Lagarde failed to lift investor’s spirits as she confirmed the bank’s intentions of raising key rates by 25bps in the next policy meeting.

Speaking before the Committee on Economic and Monetary Affairs of the European Parliament today, Lagarde warned that inflation in the Euro area shows no sign of slowing, and said:

‘Euro area activity is being dampened by high energy costs, intensified supply disruptions and greater uncertainty. Price rises are becoming more widespread across sectors and measures of underlying inflation have risen further.’ With a number of speeches planned this week, any further notions to how the ECB will be combating inflation could weigh heavily on the Euro.

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