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Pound Euro Exchange Rate to Soften Further on Hawkish ECB?

Pound and Euro coins lined up

GBP/EUR Exchange Rate Tumbles amid Bolstered ECB Rate Hike Bets

The Pound Euro (GBP/EUR) exchange rate is sliding as the cloud of inflationary pressures surrounding the UK refuse to dissipate as the EU tackles the energy crisis.

At time of writing the GBP/EUR exchange rate is around €1.1636, a 0.62% drop from this morning.

Euro (EUR) Buoyed amid 75bps Rate Hike in Wake of Uptick of German Inflation

The Euro (EUR) is enjoying relative strength as Germany’s CPI climbed marginally higher than forecasts. As inflation in Europe’s largest economy hit a near 50-year high, fuelled by surging food and energy costs, expectations also grew of another substantial interest rate hike.

Lending further support to the Euro is news out of Brussels that the European Commission is planning to reveal fiscal support that will hopefully allay the looming energy crisis in Europe. Also, reports of the EU meeting their gas storage target ahead of schedule is supporting the single currency, potentially swerving a crippling energy crisis.

Looking forward, a busy week for data could see fluctuations for the Euro. Inflation rates are set to follow Germany’s suit and rise, lending further credence to increased rate hikes. However, unemployment and GDP figures could further impact the single currency. If figures miss forecasts and show a slowdown in economies or an uptick in unemployment, rate hike expectations could be tempered.

Pound (GBP) Slips on Mounting Recession Fears

The Pound looks to be set on a downward spiral as a whirlwind of pressures continue to dampen amid the worsening cost-of-living crisis.

Economists at Goldman Sachs have added to their bleak economic outlook for the UK economy after they had already downgraded their forecasts. If soaring energy prices fail to retreat, inflation is expected to surge to 22% next year.

Elsewhere, the cost-of-living crunch is reflected in the latest consumer lending figures from the Bank of England (BoE). Increasing by the fastest rate in 17 years, UK households are turning more to borrowing money just to make ends meet.

Looking ahead, the data calendar remains thin for the Pound, exposing it to the relentless headwinds that have persisted for months. Investors, along with the entire UK, will be eagerly looking for any signs of the government stepping in with financial aid.

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