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Eurozone Recession Fears Could Be Sterling’s Gain

Eurozone Recession Fears Could Be Sterling’s Gain

The FX market has for months been preparing for an economic slowdown within the UK, but now the focus could shift to the Eurozone where expectations the economy could well enter a recession anywhere between Q4 and year end.

Economists at Barclays have revised forecasts based on the Eurozone economy and now state they expect a recession by the winter. A revision lower of growth expectations relative to the UK could ultimately push the Pound higher as markets continue to observe the differing fortunes of the major economies.

A number of other market strategists have also noted peak pessimism surrounding the UK economy has now potentially been reached, leaving the Euro more exposed to downside if growth forecasts are downgraded.

In level terms, the EUR/USD opens this morning at the midpoint of 1.04-1.05 with GBP/EUR having picked up most of yesterday, dipped back down around the European close to trade currently circa 1.1590. Cable (GBP/USD) operates just above the 1.21 mark.

Datawise and looking ahead to today, the main release of note will be Eurozone flash HICP inflation for June and ISM Manufacturing PMI from across the pond in the US. Both the headline and the core rate of inflation are forecast to rise to 8.4% and 4.5%, respectively. The releases will be watched closely and could well move markets as both are seen as high impactful news.   

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