Market Analysis: GBP Makes a Sudden Dip against EUR. Is a Recession Finally Looming, or is it Just a Blip?

FXOpen

Ever since the dawn of the new era which suddenly appeared at the beginning of this decade, mainstream opinion in the British press has been that a recession is on its way.

When the lockdowns finished almost two years ago, the overall opinion was that many business sectors had been damaged tremendously by government mandated closures, and that public borrowing and spending had been exponentially high during 2020 and 2021, and that a recession was on the way.

The recession didn’t actually materialise.

Following the aftermath of lockdowns was a cost of living crisis, which began in 2021 and is still very much part of everyday life for many people across the United Kingdom today, and with unaffordable bills and skyrocketing costs of energy products compounded by interest rates at over 5% when they had been below 1% just three years ago, the majority of people have been focusing on essentials rather than items considered not so necessary.

Talk of a recession continued, but the recession still did not begin.

Now, three years after what could perhaps be called the ‘new era’ began, talk of recession is once again present across the airwaves and written press in the United Kingdom.

The British pound has responded to this by once again dropping considerably against the euro, depreciating from the high 1.17 mark at the start of the trading day in London this morning, to the low 1.16 mark by midday UK time.

The reality is that all the pound has actually done is fall back down to where it was before trading began yesterday morning.

The interesting movement here is not today’s decline which puts its value against the euro at the lowest in five days. In reality, the interesting movement is that it soared yesterday during the entire trading day and then suddenly depreciated back down to the same value that it had against the euro last week.

Volatility of that nature is relatively rare withn major currencies, especially those trading against the euro or US dollar, but this quick rise to 1.5 cents higher against the euro and then back down again represents just that – sudden volatility.

Indicative pricing only

Even last year, during the very pessimistic outlook held by many economists over Britain’s post-Brexit, post-lockdown, energy crisis-embattled economy, the pound steadily dropped in value over a period of months against the euro and the US dollar as would be expected if so many negative factors face one of the world’s most important economies.

The sudden ceasing of that downward direction and the pound’s resurgence at the beginning of this year demonstrated a very unusual quick change of direction for a major currency.

This same situation is here now, with analysts erring on the side of caution and not really saying much other than vagaries such as Britain faces future economic setbacks, which does not really display any actual reason why the pound suddenly fluctuated over the past two days.

Possible interest rate increases are not out of the equation, but that is the case across mainland Europe and North America, meaning that most of the economies that are home to major currencies face similar challenges.

The talk of recession is just that – talk. Retail sales and home purchase transactions, as well as new car registrations are all strong in the United Kingdom, meaning that whilst there is a focus by many people on ensuring the affordability of important bills, spending on retail items, buying property and new cars is still very much unaffected.

The main consideration remains whether this is a blip caused by more sensationalist news items over the past two days, or whether a recession is actually on the cards. Moreover, if it is on the cards, whether the public have become weary of hearing constant references to a possible recession for over two years, when no such recession took place.

It’s uncertainty such as this which drives volatility, and therefore the pound’s position against its major peers is one to watch.

Trade over 50 forex markets 24 hours a day with FXOpen. Take advantage of low commissions, deep liquidity, and spreads from 0.0 pips. Open your FXOpen account now or learn more about trading forex with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Latest from Forex Analysis

Australian Dollar Weakens amid Inflation News Exchange Rates Consolidate at the Beginning of the Week The US Continues to Trump the Euro Economy on Key Metrics, But What Is Next? NZD/USD Technical Analysis: Bearish Start To News-heavy Week Market Analysis: AUD/USD and NZD/USD Grind Higher Steadily

Latest articles

Commodities

Brent Crude Oil Makes Sudden Rally As OPEC Countries Mull Low Output

Crude oil is a particularly unusual substance in that it is one of the only consumable commodities that institutions and private individuals widely trade across the spectrum of global markets, and it is a staple component as an energy resource

Forex Analysis

Australian Dollar Weakens amid Inflation News

According to data published today by the Australian Bureau of Statistics, the Consumer Price Index (CPI) value was: actual 3.4%, expected = 3.6%, a month ago = 3.4%, 2 months ago = 4.3%. Data shows Australia's consumer price growth

Shares

AAPL Share Price Rises Nearly 1% after Scrapping Electric Vehicle Plans

In 2021, the release of an electric car from Apple was expected in 2025, in 2022, the deadline was shifted to 2026. As it became known yesterday from Bloomberg and WSJ, Apple decided to completely abandon the project. Causes for

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65.68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
const theme = localStorage.getItem('theme'); new TradingView.widget({ 'width': 'auto', 'height': 610, 'symbol': 'FXOPEN:EURGBP', 'interval': 'D', 'timezone': 'Etc/UTC', 'theme': theme, 'style': '1', 'locale': 'en', 'toolbar_bg': '#f1f3f6', 'enable_publishing': false, 'allow_symbol_change': true, 'container_id': 'tradingview_EURGBP', });