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Pound Euro Exchange Rate to Slump on Shrinking UK Economy?

Pound Coin on Euro Banknote GBP/EUR

GBP/EUR Exchange Rate Wavers amid Cautious Market ahead of US Inflation

The Pound Euro (GBP/EUR) exchange rate is trading narrowly this morning as a lack of major economic data left investors turning their attention to US inflation data.

At time of writing the GBP/EUR exchange rate is around €1.1299, relatively unchanged from this morning.

Pound (GBP) Subdued amid Mixed Domestic Headlines

The Pound is trading listlessly amid a flurry of mixed headlines. Signs of companies cutting back on recruitment ahead of a recession is another warning sign of a flagging economy. However, positive Christmas food retail sales could be lifting Sterling.

Meanwhile, industrial action continues to dampen spirits across both the UK and investors alike. 100,000 civil servants are set to strike on 1 February after the Public and Commercial Services (PCS) union have announced industrial action over pay disputes and working conditions. The strike is set to be the biggest civil servant walkout in over 20 years.

The Office for National Statistics (ONS) has reported the total number of job openings have dropped below its pre-pandemic levels. In a move that signals the looming recession for the UK, companies are beginning to cut back on recruitment.

On a more positive note, Tesco and Marks & Spencer have announced record profits over the Christmas period. A rare positive headline for the Pound provided some modest support for Sterling as Tesco becomes the only grocer to increase its market share to pre-Covid levels.

Looking ahead, GBP investors will be tentatively looking towards GDP growth data released tomorrow. An expected weakening economy with a 0.2% fall is unlikely to inspire much confidence in investors. After a surprise 0.5% lift from the previous month, a return to declining economic activity could see Sterling slump.

Euro (EUR) Quiet ahead of US Inflation Data

Meanwhile, the Euro (EUR) remains subdued as investors await US inflation data. A lack of major economic data around the Eurozone has left investors focused on key US inflation data. The negative correlation the Euro shares with the US Dollar could see the former rise on dampening Federal Reserve rate hike bets.

With a widely expected softening of headline CPI, markets could finally breathe a sigh of relief if market forecasts print accurately. Dropping from 7.1%, expectations of a 6.5% headline CPI could finally slow the rate hike cycle from the Fed.

Sky-high interest rates and eye-watering inflation has long kept downward pressures on global markets. Any signs of inflationary pressures easing could finally ease fears of continued global growth slowdown.

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