GBP/EUR Plunges to €1.07 on Abysmal GDP Figures, Will the Downtrend in the Pound Persist Next Week?

Pound Licks its Wounds Following Worrying Slump in GDP

The Pound (GBP) limped over the finishing line this week, as Sterling sentiment soured sharply in the wake of the UK’s latest GDP release.

According to data published by the Office for National Statistics (ONS) on Friday, UK economic growth shrank 0.2% in the second quarter, the first quarterly contraction since 2012.

The slump appeared to be mostly attributed to the unwinding of stockpiles built up ahead of the initial Brexit deadline as well as disruption to the UK automotive industry.

In response we saw GBP/EUR slump to a near decade low at €1.07 and GBP/USD tumble to $1.20, amid suggestions the UK could fall into a recession this year.

How Will UK Economic Data Impact the Pound Next Week?

Looking to the week to come, GBP investors will have plenty of UK economic data to sink their teeth into throughout the session.

This will be kicked off with the publication of the UK’s latest jobs report on Tuesday.

While this is expected to show the UK’s unemployment rate held at a 44-year low in June, we may still see the Pound dented in response to the accompanying earnings figures as

Economists forecast that wage growth will have slowed at the end of the third quarter, constricting consumer spending power and further pressuring UK economic growth.

This will then be following by the release of the UK’s CPI figures in the mid-week, where another flat inflation reading is unlikely to spur confidence that the Bank of England’s next rate move will be lower.

Finally, we have the UK’s latest retail sales print on Thursday, which may put even more pressure on GBP exchange rates if sales growth contracted in line with expectations last month.

Heightened Political Uncertainty to Continue to Drag on Sterling?

While UK data is likely to exert some influence on GBP exchange rates next week, UK political headlines may remain the main catalyst of movement.

We have seen Sterling grow increasingly political sensitive since Boris Johnson entered office a little over two weeks ago, and this correlation looks unlikely to change anytime in the foreseeable future.

With Johnson’s government and the EU currently in deadlock over the issue of the Irish backstop, we have seen the risks of a no-deal Brexit in October rise significantly.

In response MPs opposed to a no-deal are thought to be plotting a vote of no-confidence in Johnson.

This in turn is stoking speculation that the UK will face a general election within weeks, with the resulting political uncertainty likely to prompt additional volatility in Sterling through the week to come.

Matthew Andrews

Contact Matthew Andrews