Pound Euro Exchange Rate Slips as UK Outlook Hit by Recession Gloom

Pound Euro Exchange Rate Slips from Best Levels despite Forecast-Beating UK Data 

Despite today’s key UK data largely beating expectations, the Pound Sterling to Euro (GBP/EUR) exchange rate slipped from its best levels today. Still, the pair is on track to have sustained an impressive recovery this week. 

After opening this week at the level of 1.1100, GBP/EUR spent most of the week trending higher. Last night, GBP/EUR even touched on a new 4-month-best of 1.1275. 

At the time of writing on Friday, GBP/EUR is trending a little lower as it slips from its highs. Still, the pair trends in the region of 1.1242 – still over a cent above the week’s opening levels. 

Demand for the Euro (EUR) is still fairly strong overall. Investors will continue to look to coronavirus developments and European Central Bank (ECB) news next week. 

Pound (GBP) Exchange Rates Slip as UK Data Fails to Offset Recession Fears 

Some major UK ecostats were published this morning, including trade, production and growth rate results. Most of the notable figures actually beat forecasts. 

However, the drops in growth still confirmed what markets had been fearing: that Britain’s economy was hit by the second coronavirus lockdown in November. 

Analysts now expect that Britain is headed for a ‘double-dip recession’. 

Still, some analysts, like Paul Dales from Capital Economics, believe Britain could still avoid a double-dip recession. 

Euro (EUR) Exchange Rates Continue to be Driven by Market Sentiment 

This week, the Euro has been driven largely by movement in rival currencies. The Euro’s biggest rivals, the Pound and US Dollar (USD), had been attempting recoveries. This left the Euro less appealing. 

Concerns about the Eurozone’s own worsening coronavirus situation also weighed on the shared currency. 

For now, European Central Bank (ECB) officials are hopeful that the pandemic has not had a huge impact on the bank’s balance sheets. According to Andrea Enria, Top Supervisor at the ECB: 

‘But we should not be complacent. 

We cannot rule out that once the government support measures are lifted, some banks may experience a significant deterioration in their asset quality.’ 

Pound Euro (GBP/EUR) Exchange Rate Coronavirus and ECB Developments in Focus 

The Pound Euro exchange rate could be in for further recovery in the coming week, depending on developments in Britain’s coronavirus situation. 

The UK is in its third national lockdown, but infections remain high. If there is no notable sign of improvement, fears of stricter restrictions and could drive the Pound down even lower. 

This could cause GBP/EUR to lose some of the past week’s recovery. 

On the other hand though, signs of improvement in infection rates would make it easier for the Pound to keep trending strong against the Euro. 

The Euro will be driven by rival movement, but upcoming European Central Bank (ECB) news could cause shifts in Euro strength as well. 

The ECB will hold its January policy decision on Thursday. If the bank becomes more dovish due to fresh coronavirus lockdowns it could weigh on the Euro’s outlook. 

Upcoming UK retail stats and PMIs, as well as Eurozone inflation and PMIs, could also influence the Pound Euro exchange rate next week.