UK Growth Uptick Offers Pound Euro (GBP/EUR) Exchange Rate Boost
A solid rebound in the quarterly UK gross domestic product helped to shore up the Pound Sterling to Euro (GBP/EUR) exchange rate this morning.
As economic growth picked back up to 0.3% in the third quarter this limited the impact of the second quarter’s lacklustre reading of -0.2%, helping the UK avoid a technical recession.
Although the monthly growth rate saw a fresh -0.1% contraction in September this failed to dent Pound Sterling (GBP) for the time being.
Even so, the underlying picture painted by the GDP data was still far from encouraging, as Suren Thiru, head of economics at the British Chamber of Commerce, noted;
‘The stronger headline figure masks an alarming loss of momentum through the quarter from a relatively strong July outturn and therefore does little to suggest any meaningful improvement in UK’s underlying growth trajectory.’
Italian Industrial Production Decline Drags on Euro Exchange Rates
The mood towards the Euro (EUR), meanwhile, remained generally muted thanks to another disappointing month of Italian industrial production.
As output fell -2.1% on the year in September this offered fresh evidence of the underwhelming nature of manufacturing sector activity across the Eurozone.
Coupled with the inconclusive nature of Sunday’s Spanish general election this left investors with limited incentive to favour the single currency at the start of the week.
With markets still expecting to see a lacklustre growth of quarter from the currency union there was little room for EUR exchange rate upside potential today.
Euro Looks for Evidence of Improving German Economic Sentiment
Demand for the Euro may strengthen on Tuesday, however, if November’s set of ZEW economic sentiment surveys show an improvement on the month.
Although the German sentiment index is expected to remain within negative territory investors hope to see an uptick from -22.8 to -13 on the month.
Evidence that confidence is not seeing any further deterioration could encourage the single currency to trend higher across the board.
On the other hand, if the index sinks deeper into negativity, signalling a further souring of sentiment within the Eurozone’s powerhouse economy, the GBP/EUR exchange rate may find a fresh boost.
Weaker UK Inflation Set to Boost Odds of BoE Interest Rate Cut
Fresh losses could be in store for GBP exchange rates on Wednesday as forecasts point towards an easing in the headline consumer price index.
Given the unexpectedly dovish nature of the Bank of England’s (BoE) November policy meeting any softening of inflationary pressure could raise the risk of an interest rate cut.
With inflation expected to dip from 1.7% to 1.6% on the year, moving away from the BoE’s 2% target, the case for lower interest rates looks set to increase.
Unless inflation shows signs of picking up in the face of ongoing Brexit-based uncertainty the GBP/EUR exchange rate appears vulnerable to renewed selling pressure.