Home » Pound Euro exchange rate collapses to new 2022 low on BoE’s Grim economic forecasts

Pound Euro exchange rate collapses to new 2022 low on BoE’s Grim economic forecasts

The Pound Euro exchange rate tumbled over 1% this week as Sterling sentiment was rocked by the Bank of England’s (BoE) latest interest rate decision.  

Pound nosedives as BoE sparks recession fears. 

The Pound plummeted this week, falling to its worst levels against the Euro since December. 

The majority of Sterling’s losses were focused in the latter half of the week, following the BoE’s latest interest rate decision. 

This saw the BoE raise interest rates by 0.25% as was widely expected, although GBP investors were surprised by hawkish split in the Monetary Policy Committee, which saw 3 of the 9 members break ranks to vote for an immediate 0.5% hike. 

This was in stark contrast to the BoE’s latest economic forecasts, which predicted inflation could climb above 10% and that the economy could contract by up to 1% in the last quarter of the year. 

The grim outlook stoked fears of a looming recession and sparked a dramatic GBP selloff. 

Meanwhile, the Euro got off to a slow start this week, after data showed a disappointing fall in Eurozone economic sentiment. 

A pullback in the US dollar then helped to buoy the euro, thanks to the strong negative correlation between the pairing, although these gains would proved short-lived as the EU’s proposed ban on Russian oil imports sparked fresh fears over European energy security. 

However EUR exchange rates then trended broadly higher at the end of the week as the currency began to attract some modest risk-off flows. 

Will a stalling of UK GDP push Sterling even lower? 

Turning to next week’s session, the GBP/EUR exchange rate could be vulnerable to additional losses with the publication of the UK’s latest GDP figures. 

Economists forecast UK economic growth will have stagnated in the first quarter of 2022, which will do little to boost hopes the UK will avoid a recession this year. 

For EUR investors the primary focus will be on Germany’s latest ZEW economic sentiment index. 

May’s index could weaken the Euro at the start of next week if economic morale in the Eurozone’s largest economy is shown to have deteriorated again. 

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