Home » Pound Euro exchange rate strengthens as Eurozone slips into recession

Pound Euro exchange rate strengthens as Eurozone slips into recession

The Pound Euro exchange rate trended higher again this week after revised data showed the Eurozone slipped into a recession at the start of the year. 

Euro slides on downwardly revised GDP figures 

The Pound Euro exchange rate got off to a poor start this week. An ongoing market correction saw Sterling sent lower, while the single currency caught bids on the back of some hawkish comments by European Central Bank (ECB) President Christine Lagarde. 

After briefly slipping to €1.15, GBP/EUR quickly rebounded following the release of some lacklustre Eurozone data, with April’s surprise contraction in German factory orders, a stalling of Eurozone retail sales and slump in consumer inflation expectations, softening ECB rate hike expectations. 

The Pound then spiked in the middle of the week after the Organisation for Economic Co-operation and Development (OECD) raised its forecasts for UK growth, predicting the country will no longer slip into a recession in 2023. 

The second half of the week saw the GBP/EUR exchange rate strike higher again following the publication of the Eurozone’s latest GDP figures. 

The latest estimate of growth in the first quarter reported a 0.1% contraction, while growth in the last quarter of 2022 was also revised down to –0.1%, meaning the Eurozone slipped into a recession over the winter. 

ECB rate decision in the spotlight 

Looking ahead, the main catalyst of movement in the GBP/EUR exchange rate next week will undoubtedly be the ECB’s latest interest rate decision.  

The ECB is widely expected to deliver another rate hike following its June meeting, with EUR investors having priced in an additional 25bps increase. 

However, there are some questions regarding the bank’s appetite for further hikes amid a rapid fall in Eurozone inflation. If the bank hints it’s nearing the end of its hiking cycle the Euro may plunge. 

Ahead of the ECB’s rate decision EUR exchange rates may be influenced by Germany’s latest ZEW survey. Could another deterioration in economic sentiment also weaken the single currency? 

For GBP investors the spotlight will be on the UK’s latest jobs report. A robust wage growth print and low unemployment could underpin BoE rate hike expectations and provide some lift for the Pound. 

If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers. 

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