- Pound (GBP) unchanged after rising yesterday
- BoE Governor warns of a potential crisis
- Euro (EUR) is unchanged despite weak data
- German industrial production
The Pound-Euro (GBP/EUR) exchange rate is holding steady after gains yesterday. The pair rose 0.20% in the previous session, settling on Tuesday at €1.1487. The pair traded between €1.1452 and €1.1515. At 15:30 UTC on Wednesday, GBP/EUR trades -0.02% at €1.1484.
The pound is little changed against the euro on Wednesday as markets continue to assess developments in the Middle East and as oil prices keep rising.
Bank of England Governor Andrew Bailey warned that the Iran conflict risks triggering a 2008-style financial crisis. He said turmoil in the £2.2 trillion private credit market, sparked by the conflict, could develop into a broader financial shock at a time when the global economy is already facing an energy shock and reduced liquidity in debt markets.
The private credit market consists of lending provided by institutions such as hedge funds and private finance firms rather than traditional banks, and it is generally less tightly regulated than the banking sector. That raises concerns over where financial stress could emerge if market volatility intensifies.
Meanwhile, the euro is also broadly unchanged against sterling, as both the UK and the eurozone remain heavily exposed to imported energy costs. With oil prices rising again amid renewed doubts over the durability of the Middle East ceasefire, both currencies are facing similar macroeconomic pressures.
On the data front, German industrial production was disappointing even before the conflict in Iran escalated. Output unexpectedly fell in February, casting further doubt over the prospect of a near-term recovery in the eurozone’s largest economy.
Industrial production declined by 0.3% month-on-month, with weakness led by construction and consumer goods. The figures offer little reassurance that Germany can deliver a meaningful rebound, particularly against a backdrop of rising energy costs and weak confidence.
Germany’s leading economic institutes now expect GDP growth of just 0.6% this year, less than half the pace forecast only a few months ago. Looking ahead, the outlook for both Germany and the broader eurozone will depend heavily on how the Middle East conflict evolves and whether energy prices continue to rise.
