GBP/EUR Exchange Rate Muted as UK GDP Confirmed to Have Slumped to Five-Year Low
The Pound to Euro (GBP/EUR) exchange rate found itself on the back foot this morning as the UK’s latest GDP figures showed the UK economy only expanded by 0.1% at the start of 2018.
At the time of writing GBP/EUR is trending slightly lower this morning, with the pairing currently on track to end the week down by around half a cent.
Pound Sterling (GBP) Exchange Rates Pressured by Weak GDP Figures
The Pound Sterling (GBP) exchange rate fell back at the start of today’s trading session as markets remained unimpressed by the UK’s latest growth figures.
The Office for National Statistics (ONS) published its latest estimate for GDP on Friday, confirming that the UK economy expanded just 0.1% in the first quarter of 2018.
This was the slowest pace of growth in five years and was attributed to a pattern of ‘slowing growth’, particularly in consumer-facing industries, which continued to suffer from weak spending, which rose at its slowed pace in 2015.
In contrast with the Bank of England (BoE) the ONS also suggested that the ‘Beast from the East’ only had a limited impact on the economy, saying instead the slowdown was driven by underlying weakness in the UK economy. It stated:
‘While the bad weather had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited, with partially offsetting impacts in energy supply and online sales.’
Euro (EUR) Exchange Rate Pressured by Italian Debt Outlook
At the same time the Euro remains on the defensive against the majority of its other peers at the end of this week’s session as uncertainty over the new government in Italy continues to weigh on market sentiment.
The main concerns for investors appears to be the potential for Italy’s already substantial debt to balloon as the new coalition government looks to push ahead with its plans for tax cuts and major increases to welfare spending.
In a press conference on Thursday many of Italy’s partners gathered to urge the new government to rethink its spending plans and stick to EU budget rules in order to avoid unsettling the entire Eurozone.
Slovak representative Peter Kazimir said:
‘I sincerely hope that the new Italian government won’t ignore rules and take Eurozone hostage for the sake of pre-election promises. That would be a very risky business.’
GBP/EUR Exchange Rate Forecast: Dovish Carney to Drag on Sterling?
Looking ahead, the GBP/EUR exchange rate may see some movement later this afternoon as BoE Governor Mark Carney speaks at an event at Sweden’s national bank, the Riksbank, in Stockholm.
While the event is set to address financial stability and central bank transparency, markets will be looking closely for any hints regarding the BoE’s policy outlook.
We could see the Pound (GBP) Exchange rate tumble if the UK’s recent dip in inflation causes Carney to urge caution on raising interest rates this year.
Meanwhile EUR investors are likely to turn their attention to next week’s session, with the Euro (EUR) potentially rising if the Eurozone’s inflation rate is shown to have rebounded this month, as forecast.