Positive UK Gross Domestic Product Supports Pound Euro (GBP/EUR) Exchange Rate
A solid uptick in July’s monthly UK gross domestic product helped the Pound Sterling to Euro (GBP/EUR) exchange rate to stabilise after hitting a six-month low yesterday.
Although growth was not as strong as in the previous month the 6.6% increase still points towards the economy moving in the right direction at the end of the second quarter.
This failed to improve the appeal of Pound Sterling (GBP) for long, though, as worries over the longer-term growth outlook remain.
With the economy’s momentum already showing signs of slowing and as tensions over Brexit mount the risk of a fresh downturn weighed on the minds of investors.
Ultimately, with the overall gross domestic product only back to levels seen in 2013 confidence in the Pound proved limited.
July GDP figures show continued 'bounceback' but still 11.7% down on February levels. As ONS note 'While it has continued steadily on the path towards recovery, the UK economy still has to make up nearly half of the GDP lost since the start of the pandemic'. pic.twitter.com/Iu00G0Y6Dp
— TUC Economics and Social Affairs (@TUCeconomics) September 11, 2020
Less Dovish ECB Message Buoys Euro Demand
Demand for the Euro (EUR) remained strong, meanwhile, in the wake of the European Central Bank’s (ECB) September policy meeting.
As policymakers showed limited concern over the bullishness of the single currency this encouraged bets that the ECB will not act to weaken EUR exchange rates.
Given the less dovish nature of the ECB’s revised economic forecasts investors saw little reason to sell out of the Euro ahead of the weekend.
Confirmation that the German consumer price index flat-lined on the year in August also failed to put any fresh pressure on the single currency.
Fresh commentary from ECB policymakers could see the Euro pushing higher against the Pound this afternoon.
As long as policymakers do not talk up the prospect of further monetary stimulus to come before the end of the year EUR exchange rates should benefit from another bout of bullishness.
Tensions over UK’s Internal Market Bill to Keep Pound under Pressure
Developments surrounding Boris Johnson’s controversial Internal Market bill could see the GBP/EUR exchange rate shedding further ground in the days ahead.
With EU officials calling for the removal of parts of the bill that conflict with the Brexit withdrawal agreement the issue remains a potential flashpoint.
Unless the two sides can show signs of progressing towards a fresh deal the mood towards the Pound looks set to sour.
If the UK remains at risk of exiting the transition period without a deal in place the threat of further economic pressure to come could dent the GBP/EUR exchange rate.
As the economy has already shown signs of struggling to maintain its initial recovery momentum resurgent worries over the outlook for 2021 and beyond may well drag on the Pound.
Speculation ahead of the release of the latest UK unemployment data could also keep the GBP/EUR exchange rate trending in the region of its recent lows.