• Pound (GBP) tumbles on recession fears
  • UK public sector net borrowing rose to 3rd highest year
  • Euro (EUR) gained versus pound but not the US dollar
  • German consumer confidence and ECB Christine Lagarde to speak

The Pound Euro (GBP/EUR) exchange rate is trading under pressure, snapping a six-day losing streak. The pair settled -0.50% lower on Tuesday at €1.1832 towards the low of the day, after trading in a range between €1.1810 – €1.1916. At 05:45 UTC, GBP/EUR trades +0.05% at €1.1897.

The pound fell lower again on Tuesday as investors fretted over the cost of the living crisis engulfing the UK. The rise in energy and food prices amid the fallout from the Russian war is squeezing household incomes.

However, the weakening in the growth outlook for the UK means that investors are also scaling back their expectations of rate hikes by the BoE, amid fears that if the central bank raises interest rates too quickly, it will tip the UK economy into recession.

On the data front UK, public sector net borrowing rose hit its third-highest year ever in the financial year ending March 2022. The UK government borrowed £151.8 billion, which excluding the banking sector, was 6.4% of GDP.

Today there is no high impacting UK economic data due to be released today, which leaves the pound to trade at the will of sentiment and/or directed by the euro.

The euro rose versus the pound but fell versus the stronger US dollar. The euro is struggling to make real gains as investors are nervous that the EU could soon announce the sixth package of sanctions against Russia. Reports are circulating that this package could include smart sanctions on Russian oil exports.

Looking ahead, German consumer confidence data is expected to show that sentiment will deteriorate further in May, dropping to -16.3, down from 15.5, as inflation remains elevated.

European Central Bank Governor Christine Lagarde is also due to speak tomorrow amid growing hawkish calls within the central bank. The ECB is expected to raise interest rates in Q3, with some policymakers suggesting that July could be the kick-off date.