A Rollarcoaster Week for GBP EUR – Weekly Review June 18th 

A Rollarcoaster Week for GBP EUR - Weekly Review June 18th 

The GBP EUR exchange rate had a rollercoaster week with a move to lows not seen in over a year, before rallying hard. The Bank of England interest rate hike spurred the late rally. GDP figures, wages and a revival of EU legal action over the Northern Ireland Protocol weighed on the pound sterling.

The GBP v EUR was back at 1.1700 looking for support – buying below that level could provide it.

Weaker growth and wage pressure weigh on sterling

The pound sterling was lower on Monday after the latest three-month GDP figures showed a second consecutive monthly drop in growth.

Analysts expected a 0.2% growth, but the actual result was a -0.3% drop. The quarterly result disappointed at 0.2% after expectations of 0.4%

Rupert Harrison, the economist at BlackRock and former advisor to George Osborne, said the UK may already be in recession. Harrison told the BBC:

“We may already be in recession in the UK. It’s very very likely now that the second quarter is going to see negative growth. We may get some mechanical bounce back in the third quarter, partly for complicated reasons due to the Jubilee…  But effectively growth is around zero and may get worse as we head into the autumn, particularly with energy prices going back up.”

Employment figures on Tuesday showed a 177k addition to the jobs market after the expected 105k. This addition helped the pound sterling. However, the unemployment rate came in higher at 3.8% after expectations for a drop. Wages were the real disappointment,  dropping 4.5% after adjustment for inflation. This represented the steepest decline since records began in 1991.

Data for the eurozone saw inflation at a new high of 7.9% for Germany. This figure aligned with predictions.

The pound sterling versus the euro suffered after the EU Commission and European Union both re-ignited legal action over the Northern Ireland protocol issue. That will likely hurt the pound over the months ahead until they find a resolution .

Bank of England saves the pound sterling with the rate rise

The pound sterling rallied hard from lows under 1.1500 after the Bank of England raised interest rates on Thursday to 1.25%.

The Bank noted the weaker pound sterling in its monetary policy statement, showing its keenness to tackle the problem, alongside surging inflation.

The Bank expressed concerns about the economy dropping, predicting inflation will hit 11% in the Autumn, presenting the bigger threat. The strength in the jobs market supported the decision. Ultimately, the real pressure is on households. Tackling inflation will help to stop the rot in real wages.

The US Federal Reserve raised its interest rates by 0.75% – the biggest rate hike since the 1980s. Stock markets were hit as funding costs rose.

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