Pound Euro Exchange Rate News: GBP/EUR Climbed as Germany Slipped into a Recession

May 25, 2023 – Written by John Cameron

Euro (EUR) Undermined by German Recession

Meanwhile, the Euro (EUR) slipped on Thursday in the wake of a downwardly revised German GDP growth data. Against a previously expected stagnation in Europe’s largest economy, German GDP shrank by 0.3% in the first quarter.

A second consecutive quarter of a shrinking economy marks a technical recession. With cracks appearing across the Eurozone, EUR investors are concerned with the state of the economy. Carsten Brzeski, Global Head of Macro at ING, commented on the latest data:

‘A drop in purchasing power, thinned-out industrial order books as well as the impact of the most aggressive monetary policy tightening in decades, and the expected slowdown of the US economy all argue in favour of weak economic activity.’

Preventing a further slide, however, was a modest improvement in consumer confidence. A mild improvement as confidence in Germany edged higher for the eighth straight month. It was the highest reading since April 2022 as confidence ticked higher to -24.2.

Pound (GBP) Dampened by Stuttering Retail Sector

The Pound (GBP) climbed modestly against some of its peers on Thursday despite the lower-than-expected distributive survey from the Confederation of British Industry (CBI). The retail sales balance slipped to -10 against expectations of a vastly improved 10.

The survey pointed to a substantial contraction in sales during May. Price pressures and elevated inflation weighed heavily on the retail sector. A third consecutive quarter of falling employment represented the largest drop since February 2009. However, optimism grows in regards to June’s forecast and beyond, amid improving consumer confidence and a reduction in energy prices.

Keeping the Pound supported, however, are elevated interest rate hike expectations. In the wake of a hotter-than-expected inflation reading, the Bank of England (BoE) might not have much choice but continue raising interest rates until inflation is reined in.

GBP/EUR Exchange Rate Forecast: Rebounding Retail Sales to Boost Sterling?

Looking ahead, the Pound Euro exchange rate could see further movement with the latest retail sales for the UK. Following a disappointing 0.9% slump in March, a forecasted 0.3% improvement could allay fears of a stuttering retail sector, and the Pound could climb.

Meanwhile, the Euro will be heading into the weekend without any major economic data. Its negative correlation with the US Dollar could keep a firm lid on the Euro if the US debt ceiling talks continue to stall. A cautious market mood could increase safe-haven flows for the ‘Greenback’, sapping demand for the riskier Euro.

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