Pound Sterling to Euro (GBP/EUR) Exchange Rate Lacks Support as UK GDP Underwhelms

UK GDP Fails to Encourage Pound Sterling Euro (GBP/EUR) Exchange Rate Rebound

UPDATE: As the second quarter UK gross domestic product data proved rather mixed this left the Pound Sterling to Euro (GBP/EUR) exchange rate on a soft footing.

While the quarterly growth rate doubled from 0.2% to 0.4% this is still weaker than the long-term average, highlighting the economy’s struggle to recover its earlier momentum.

June’s monthly GDP reading gave Pound Sterling (GBP) little in the way of encouragement, meanwhile, as growth eased to just 0.1% as the service sector stalled.

Pound Sterling Euro (GBP/EUR) Exchange Rate Cautiously Recovers Ground as Slump Eases

UPDATE: After several days of weakness the Pound Sterling to Euro (GBP/EUR) exchange rate found some limited support on Thursday morning.

Although markets remain wary of the prospect of the UK and EU failing to agree a deal on Brexit the softness of Pound Sterling (GBP) still encouraged investors to buy back into the weakened currency.

The modest uptick in the GBP/EUR exchange rate remains distinctly fragile, though, with any fresh political commentary likely to provoke fresh jitters.

Cautious ECB Bulletin Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Losses

As the European Central Bank (ECB) Economic Bulletin revealed a continued sense of caution this helped to limit the weakness of the Pound Sterling to Euro (GBP/EUR) exchange rate.

While investors were not surprised by the ECB’s latest warning over the downside risks that face the global economy this still left the Euro (EUR) on a softer footing.

The central bank looks set to leave interest rates on hold for the foreseeable future, limiting the appeal of the single currency.

With the Trump administration continuing to ratchet up its protectionist rhetoric and trade tensions with China concerns remain over the outlook of the Eurozone economy.

The relative strength of the US Dollar (USD) has also helped to put pressure on EUR exchange rates, especially as anticipation builds for Friday’s US inflation data.

Fears of No Deal Brexit Keep GBP Exchange Rates on Back Foot

Escalating market worries over the prospect of a no deal Brexit kept the Pound Sterling to Euro (GBP/EUR) exchange rate under pressure on Thursday.

International trade secretary Liam Fox’s comments on the odds of the UK exiting the EU without a deal continued to limit the appeal of Pound Sterling (GBP).

In the absence of any fresh breakthrough in negotiations GBP exchange rates look set to remain biased to the downside for some time to come.

Although the RICS house price balance showed a solid improvement on the month in July this was not enough to shore up the Pound.

Stronger UK Growth Forecast to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate

The Pound Sterling to Euro (GBP/EUR) exchange rate could find a solid rallying point ahead of the weekend if the second quarter UK gross domestic product data proves positive.

Forecasts point towards growth accelerating from 0.2% to 0.4% on the quarter, recovering some of the momentum lost during the adverse weather in the first quarter.

This would give the Pound some cause for confidence, indicating that Brexit-based uncertainty is having a more limited impact on the domestic economy.

A narrowing of June’s visible trade deficit may also benefit GBP exchange rates on Friday, even though anxiety over trade is likely to persist for some time to come.

If growth fails to pick up as anticipated, though, this could expose the GBP/EUR exchange rate to further downside pressure.

GBP/EUR Exchange Rate Vulnerable to German GDP Data

Looking ahead to next week, the Pound Sterling to Euro (GBP/EUR) exchange rate may see further weakness on the back of the latest German growth data.

Signs that the Eurozone’s powerhouse economy continued to expand in the second quarter would offer the Euro a fresh boost.

However, if Germany continues to struggle to regain the economic momentum lost at the start of the year the single currency could fall out of favour.

As Eurozone data has generally disappointed over the course of the second quarter any growth may prove limited.

Any fresh dent to confidence in the economic outlook would give the Pound Sterling to Euro (GBP/EUR) room to recover some of its recent losses.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon