Upgraded Third Quarter UK Growth Encourages Pound Sterling Euro (GBP/EUR) Exchange Rate Gains
As the finalised third quarter UK gross domestic product saw a surprise upward revision the Pound Sterling to Euro (GBP/EUR) exchange rate began to recover some of its lost ground this morning.
The news that quarterly growth had rebounded from -0.2% to 0.4% in the third quarter encouraged a greater sense of confidence in the economic outlook, in spite of lingering Brexit-based uncertainty.
Even so, the positive impact on Pound Sterling (GBP) was still ultimately limited thanks to anxiety over the risk of the UK facing a cliff-edge Brexit in 2020.
Given the elevated anxiety leading up to last week’s general election investors also remain wary of the potential for a weaker fourth quarter growth rate, leaving the UK economy on a softer footing once again.
Disappointing German Consumer Confidence Limits Euro Exchange Rate Strength
Support for the Euro (EUR), meanwhile, eased in the face of a weaker-than-expected German GfK consumer confidence index.
As the measure dipped from 9.7 to 9.6, rather than improving as anticipated, this cast a fresh shadow over the outlook of the German economy.
With markets still wary of the potential for the Eurozone’s powerhouse economy to lose further momentum in the final quarter of the year this disappointing showing weighed on EUR exchange rates.
While October’s Eurozone current account surplus unexpectedly swelled from 35.8 billion to 41 billion this failed to offer the Euro any significant boost, even as the currency union shows signs of shrugging off global trade tensions.
Euro Vulnerable to Signs of German Retail Sales Weakness
With no fresh Eurozone data set for release over the Christmas week support for the single currency could prove limited in nature.
The release of Germany’s November retail sales could put further pressure on EUR exchange rates before the end of the year, though.
Evidence that consumers took a more cautious view may drag the Euro lower across the board, with weaker levels of domestic demand likely to add to the existing weakness of the manufacturing sector.
As long as markets see reason to bet that Germany could experience a fresh deterioration in growth in the fourth quarter demand for the single currency looks set to remain generally muted.
Lingering Fears of Cliff-Edge Brexit Set to Hang Over GBP/EUR Exchange Rate
If MPs vote to rule out the possibility of any further extension of the Brexit transition period the mood towards the Pound is likely to sour.
The growing risk of a cliff-edge Brexit could weigh the GBP/EUR exchange rate down for some time yet to come, with investors wary of the potential disruption that such an exit could cause.
However, signs that the UK and EU could be on track to agree the terms of their future trade relationship before the end of 2020 may give the Pound a boost.
As long as Brexit-based uncertainty appears set to drag on the economic performance of the UK, though, this may limit the potential for a stronger GBP/EUR exchange rate rally.