GBP EUR Exchange Rate: Weekly Review May 7th

GBP EUR Exchange Rate: Weekly Review May 14th

The GBP EUR exchange rate was smashed lower on Thursday as traders reacted to the latest Bank of England (BoE) interest rate hike. A move to 1% interest rates was met with six voting members who wanted 1.25%. The BoE also had dire forecasts for growth and energy bills with households set to feel the squeeze once more.

The GBP v EUR crashed through the previous 1.1800 support level and may head lower in the weeks ahead.

Bank of England shocks markets with recession warnings

The Bank of England raised interest rates to 1% as many analysts had forecast, but three voting members actually wanted a hike to 1.25%.

The rates rise also came with dire warnings of lower economic growth, higher unemployment and higher energy bills for the UK.

The Bank slashed its forecast for growth next year from 1.25% to -0.25% which is as close as it gets to forecasting a recession for the optimistic forecasters.

But one of the biggest shocks was a prediction that the consumer price inflation index, would rise to 10.25% towards the end of the year – almost double the previous forecast of 5.75%.

Andrew Bailey, the BoE governor, said the predicted slowdown in growth reflects the “significant adverse impact” of sharp rises in energy and goods prices on UK households.

“It is a measure of the scale of the shock that total real household disposable income is projected to fall by 1.75% in 2022 which – apart from 2011 – will be the largest contraction since comparable records began in 1964,” he said.

“I must say that I recognise the hardship this will cause for many people in the UK, particularly those on the lowest incomes, often with little or no savings, that were hit hardest by increases in the prices of basic necessities like food and energy,” he added.

The governor previously came under fire for suggesting that employees should be modest when asking for pay increases to avoid pushing up wage inflation.

German and Eurozone economies feel the heat from Russia

German retail sales fell unexpectedly through March as the war in Ukraine leads to price increases, according to data this week.

The Federal Statistics Office said retail sales were down 0.1% on the month in real terms, while Reuters had forecast had predicted an increase of 0.3%.

German exports also struggled with the former powerhouse lurching towards a deficit. The country’s trade surplus fell sharply in March after a collapse in exports to Russia. Europe’s largest economy reported a 62% drop in sales to Russia on a month-on-month basis in March.

That helped to drive down Germany’s trade surplus by 3.3% in March after 6.2% growth in February, Destatis said.

Manufacturing was also mixed amongst member states and European retail sales were also lower. Markets had expected a reading of 1.4%, but official figures showed a 0.8% rise after last month’s 5.2%. Unemployment also ticked higher in the Eurozone with a 0.1% move above expectations.

German unemployment dropped the least in a year as the lifting of pandemic restrictions collided with the Ukraine war.