The exchange rate of the pound and the euro will weaken further on the Dovish BoE? » Future Currency Forecast


GBP/EUR exchange rate softens as BoE hikes rates by 50 basis points

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

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

British Pound (GBP) Loses Momentum as BoE Issues Grim Warning

The pound is slipping today despite the BoE raising interest rates by 50 basis points, the biggest rise since 1995. With market expectations of a 50 basis point increase, the Demand for the pound weakened amid growing fears of a recession, as well as the BoE’s dovish turn.

Following this bold rate hike, the central bank issued a warning that the UK economy would enter recession by the end of the year. By reducing its growth forecasts, the BoE issued a stark warning:

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

“Real after-tax household income is expected to fall sharply in 2022 and 2023, while consumption growth will turn negative.”

Going forward, as inflationary pressures continue to mount, the cost of living crisis is likely to continue to weigh on the pound. Without any other major data for the rest of the week, the British pound will be left in sour market mood.

Euro (EUR) floats amid growing recession fears

The Euro (EUR) struggles to find a clear direction today as fears of impending recession dominate. Despite a potentially impending recession in the Eurozone, fresh surprises from Germany boosted the single currency.

A rally in German bond yields and a better-than-expected drop in factory orders limited any further losses for the euro. An expected 0.8% decline in German factory orders came in at 0.4%, marking the fifth consecutive month of falling orders. Amid a turbulent economy characterized by high inflation and supply chain issues, the data points to troubling times ahead.

The euro could see further downside pressure with the release of German industrial production figures tomorrow, and if the forecast turns out to be true, recession fears could rise further. With thin data on the ground for the rest of the week, the single currency could encounter headwinds as a looming energy crisis is expected to weigh heavily.

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