GBP/EUR Exchange Rate Falls as UK Growth Data Undershoots Forecasts in May
The Pound to Euro (GBP/EUR) exchange rate fell by -0.2% today, with the pairing currently trading around €1.104.
Sterling suffered today as hopes for a V-shaped economic recovery were dashed after the UK’s growth figure for May undershot forecasts at 1.8%. As a result, GBP investors have become increasingly concerned for Britain’s economic recovery from the Covid-19 pandemic.
Ian Stewart, chief economist at Deloitte, was downbeat in his analysis saying that Britain’s economy would take ‘years, not months’ to fix the damage from the virus.
Mr Stewart added:
‘The bounce-back from COVID-19 has got off to a disappointing start. The pace of activity will have picked up sharply in June as the easing of the lockdown got underway. The chances of a quick return to normal, of the famed V-shaped recovery, are falling.’
Meanwhile, Chancellor Rishi Sunak highlighted today’s GDP figures as underlining the ‘challenge we face’.
Euro (EUR) Edges Higher Despite Worse-Than-Expected Eurozone Economic Data
The Euro (EUR) edged higher against the Pound (GBP) despite worse-than-expected Eurozone economic data. Today saw the release of Germany’s ZEW Survey of Economic Sentiment for July, which fell below forecasts from 63.4 to 59.3.
Germany’s ZEW Survey of the Currency Situation also remained downbeat at -80.9.
ZEW President Professor Achim Wambach commented on the report:
‘The outlook for the German economy largely remains unchanged compared to the previous month. After a very poor second quarter, the experts expect to see a gradual increase in gross domestic product in the second half of the year and in early 2021.’
Today also saw the release of the Eurozone’s Industrial Production report for May, which improved from -18.2% to 12.4%. However, with the bloc’s industrial and manufacturing sector still in the doldrums this failed to reassure many EUR investors.
Analysts at Reuters said:
‘The limited rebound in May, when many plants reopened, suggest the recovery is limited. The fall in April was also bigger than initially estimated by Eurostat, which on Tuesday revised its month-on-month data to -18.2% from -17.1%.’
‘Compared with a year earlier, industrial production was down by 20.9%, worse than market expectations of 20.0% but better Aprils 28.7% drop.’
GBP/EUR Outlook: Could Positive UK Inflation Data Buoy Sterling?
Pound (GBP) investors will be looking ahead to tomorrow’s release of the UK’s inflation figures for June. Any signs of improvement in the latest CPI data would prove GBP-positive.
Tomorrow will see the release of the final Retail Price Index for June. However, with concerns over Britain’s economic performance growing, this is unlikely to offer much support for Sterling.
The Euro (EUR) will remain sensitive to risk-sentiment. Any further signs of a possible second wave of the coronavirus could further boost the safe-haven single currency.
The GBP/EUR exchange rate will likely remain subdued this week as Britain’s economic performance continues to undercut forecast.
However, any breakthrough in UK-EU post-Brexit negotiations on a possible free trade deal would prove GBP-positive.