- Pound (GBP) is under pressure confidence in PM falls
- Concerns over UK economy remain
- Euro (EUR) rose last week despite disappointing data
- ECB rate decision due on Thursday
The Pound Euro (GBP/EUR) exchange rate is holding steady at the start of the week after steep losses last week. The pair lost 0.9% in the previous week, settling on Friday at €1.1648 after trading in a range between €1.1646 – €1.1783. At 05:45 UTC, GBP/EUR trades +0.03% at €1.1652.
The pound fell across the previous week as fears over surging inflation and concerns that the UK is on the brink of recession dragged on the pound. With inflation at 9% and likely to continue rising, the principal concern is that too many rate hikes from the Bank of England to bring inflation back under control will tip the economy into recession.
Therefore, investors have been forced to rein in their rate hike expectations which is dragging sterling lower.
In addition to recession concerns, there is the scandal-prone government which is doing little to support demand for the pound.
There are arising concerns that Prime Minister Boris Johnson could face a leadership challenge this week. According to the Times newspaper, a vote has been scheduled for Wednesday. The PM has struggled to move past the partygate scandal with many conservative lawmakers saying that they had lost faith in their leader.
At least 54 Conservative members of Parliament are required to submit a letter of no confidence for an official vote to be called.
The Euro gained ground last week despite disappointing data on Friday. Eurozone retail sales fell by -1.3% month on month, much worse than the 0.3% rise forecast and down from the 0.3% recorded in April.
The data reflects declining consumer confidence amount households and rising inflation curbing disposable income. The data points to a serious slowdown in the eurozone economy.
Eurozone composite PMI also slowed by more than initially expected in May to 54.8, down from 54.9.
There is no high impacting Eurozone economic data today and is a bank holiday in several European countries. The European Central Bank interest rate decision is due on Thursday although no rate hike is expected this month.