GBP EUR Exchange Rate: The Week Ahead July 24th

GBP EUR Exchange Rate: The Week Ahead July 24th

The GBP EUR exchange rate was lower after employment figures showed real wages fell at their fastest pace since records began in 2001. There was also a higher inflation print at 9.4%, which added to the recession fears for the UK. The euro rallied from the return of Russian gas from the Nord Stream pipeline. The European Central Bank were also in focus with a rate hike to end its negative rate cycle.


The GBP to EUR fell below the 1.1800 level the week after erasing a recent rally to 1.1900.


Market to focus on last week’s economic data

The week ahead has IFO business climate figures from Germany, followed by consumer confidence for the German and French economies. Those numbers won’t move the market, and traders will focus on last week’s economic data and ECB outlook.


The employment figures from the UK showed that real wages

fell the fastest since records began in 2021. That keeps pressure on the Bank of England to try and cool inflation. 


The Bank of England Governor Andrew Bailey said last week that a 50% rate hike was “among the choices on the table”.


Last week’s inflation print, which came in at 9.4%, will add pressure to that meeting, although the BoE did predict that inflation would hit 10% before settling. The bank may go for a 25bps rate hike, seeing how inflation develops over the coming months.


In the UK leadership race, foreign secretary Liz Truss emerged as a frontrunner to take over the vacant Prime Minister’s position from Boris Johnson.


Market eyes turn to the European Central Bank’s new tool

The market will focus on another bailout tool from the ECB and the ramifications for indebted member states.


Writing in the Spectator, Matthew Lynn said of the bank’s President:

“As President Sarkozy’s finance minister, Christine Lagarde ran up one of France’s largest ever budget deficits and moved so slowly on reforms it cost him re-election. As managing director of the International Monetary Fund, she collaborated in a severe deflation that created the worst recession in recorded history in Greece… then led the IMF into potentially its worst ever losses with a failed bailout of Argentina. Wherever Christine Lagarde goes, she leaves an economic train wreck behind her.”


There are rumblings of another “train wreck” in the euro as we approach the winter. The ECB proudly talked of the end of pandemic stimulus recently. Only weeks later, the bond market prices for Italian and Spanish debt forced a new bailout tool discussed further at last week’s rate hike meeting.


The ECB wants to intervene in the debt markets again to cool the yields on indebted countries’ bonds, but that may require fiscal rules. However, outside of the general economy, there is a risk of further problems in energy markets. Traders and analysts cheered this week on the news that Gazprom will continue gas flows to Europe after recent maintenance. The real test will be in the winter. Will Russia play fair on energy supplies as the winter approaches?