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Pound Euro Exchange Rate to Weaken Further on Dovish BoE?

Pound coin on a Euro banknote

GBP/EUR Exchange Rate Softens as BoE Hikes Rates by 50bps

The Pound Euro (GBP/EUR) exchange rate is weakening despite the Bank of England (BoE) meeting expectations and made its biggest interest rate increase in 27 years.

At time of writing the GBP/EUR exchange rate is around €1.1889, a half percent fall from this morning.

Pound (GBP) Loses Momentum as BoE Issues Bleak Warning

The Pound is sliding today despite the BoE raising its interest rates by 50bps, the biggest hike since 1995. With market expectations of a 50bps raise, demand has sapped for the Pound amid growing concerns of a recession, as well as the dovish turn from the BoE.

Following the bold rate hike, the central bank issued a warning that the UK economy will enter a recession by the year’s end. Slashing their growth forecasts, the BoE issued a stark warning:

‘GDP growth in the United Kingdom is slowing. The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe.

‘Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.’

Looking ahead, as inflationary pressures continue to rise, the cost-of-living crisis is likely to continue weighing on the Pound. Without any further major data for the rest of the week, Sterling will be left to the souring market mood.

Euro (EUR) Wavers amid Mounting Recession Fears

The Euro (EUR) is struggling to find a clear direction today as looming recession fears dominate. Despite a potentially imminent Eurozone recession, surprise news out of Germany has boosted the single currency.

A recovery to German bond yields and a better-than-expected fall in factory orders has limited any further losses to the Euro. An expected 0.8% drop in German factory orders came in at 0.4%, marking the fifth consecutive month of lower orders. Amid a turbulent economy of high inflation and supply chain issues, the data points to troubling times ahead.

The Euro could see further downward pressures with the release of German industrial production figures tomorrow, and if forecasts prove true, recession fears could grow further. With data thin on the ground for the rest of the week, the single currency could encounter headwinds as a looming energy crisis is likely to weigh heavy.

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