GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) rises after steep losses post-BoE
  • Chancellor could raise taxes on dividends
  • Euro (EUR) falls after German factory orders slump
  • Eurozone services PMI up next

The Pound Euro (GBP/EUR) exchange rate is rising after steep losses in the previous session. The pair fell -1.3% yesterday, settling at €1.1445 after trading in a range between €1.1589 – €1.1635 across the session. At 05:45 UTC, GBP/EUR trades +0.3% at €1.1643.

The pound is attempting to rise after steep falls in the previous session. The pound tumbled after the Bank of England raised interest rates by 0.75%, the largest rate hike in 33 years. The move by the central bank takes interest rates to 3% as it fights against inflation of 10.1%, a 4-decade high.

BoE Andrew Bailey warned that peak interest rates were unlikely to rise to the 5.25% that the market was expecting. The UK is also expected to fall into a prolonged recession from Q4 2022 lasting throughout 2023. Slower growth means slower inflation which means that the BoE will need to raise interest rates at a less aggressive pace.

Today three is no high impacting UK economic data. Investors continue to look ahead to the fiscal statement on 17th November. Recent reports suggest that the Chancellor could look to raise taxes on capital gains and dividend taxes, a move which would affect the many small businesses which are the bases of the UK economy.

The euro is edging lower after German factory orders tumbled in September. Factory orders fell -4% month on month in September. This was down from -2% in August and well short of analyst’s forecasts of a -0.5% decline. The sharp decline comes as foreign orders dropped 7% and as domestic inflation rose to a record high.

The data is the latest, which points to Germany heading into a recession as it struggles with rising energy costs. After a surprise rise in GDP in the third quarter, the economy is expected to contract in the current quarter before falling into recession next year.