The Pound Euro (GBP/EUR) exchange rate struggled to find demand on Friday as UK house prices slumped for the fourth straight month amid a mixed market mood.
At time of writing the GBP/EUR exchange rate traded at around €1.1304, relatively unchanged from Monday’s opening levels.
The Pound (GBP) failed to gather strength on the final trading day of 2022. Unfortunately, investors found very little to cheer for in 2023 as the myriad of headwinds look set to continue.
The Resolution Foundation have warned that the falling living standards that have befallen millions of households this year will continue into 2023. With disposable incomes expected to drop by another 3.8%, households could struggle with soaring energy prices and rising tax hikes. The cost-of-living crisis, which has seen living standards plummet, is set to continue into the new year.
Torsten Bell, Chief Executive of the Resolution Foundation, said that the cost-of-living crisis has been far worse than any year in the pandemic or the financial crisis. And fully expects the next year to be the same. Bell added:
‘But it looks set to be a groundhog year for many families whose incomes look set to fall by just as much as they did in 2022.’
Despite falling inflation, the price of essential items will continue to rise, keeping the pressure on low-income households. A spokesperson for the Treasury has said that the government is committed in supporting those most vulnerable. They commented:
‘We also have a plan that will help to more than halve inflation next year, bearing down on the financial pressures that households face, and have already lifted millions of people out of paying tax altogether by raising the tax-free allowances for both income tax and national insurance by more than inflation since 2010.’
Further weighing on the UK economy, and in turn the Pound, is a fourth straight month of declining house prices. Reflecting the longest run of slumping prices since 2008, market analysts are fearing that house prices could continue to plummet as much as 10% over the next two years. Tom Bill, Head of Residential Research at Knight Frank, said of the situation:
Meanwhile, the Euro (EUR) found some modest support amid a relatively risk-off market mood. However, with the concerning situation in China, safe-haven currencies could reap the benefits of a sliding global market sentiment.
In a report published by the BDI industry association claims that the inflation rate in Germany is unlikely to retreat from its dizzying heights for some time. With the European Central Bank’s (ECB) target of 2% not feasible until at least 2025, investors are now expecting the ECB to continue raising hikes to tame inflation. Increased rate hike expectations could be providing a much-needed tailwind for the single currency to close the year out.
Looking ahead, the Pound Euro exchange rate will be left to trade on market sentiment, and in particular the situation in Ukraine. Escalating conflict is likely to deter investors as peace now seems a distant possibility.
Meanwhile, the Pound is unlikely to muster much strength amidst the maelstrom of headwinds keeping it under pressure. Prolonged industrial action and downbeat economic forecasts could see Sterling slide further.
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