Pound to Euro (GBP/EUR) Exchange Rate Falls as UK Growth Outlook Darkens for 2021

GBP/EUR Exchange Rate Sinks as UK Growth Slowed in September

The Pound to Euro fell by -0.3% this morning despite the UK’s GDP growing by 15.5% in the third quarter of 2020, showing that the economy had recover from the economic shock of the nation’s first Covid-19 lockdown. The pairing is currently trading around €1.119.

Michael Hewson, an analyst at CMC Markets, commented on the data:

‘With the increase in restrictions seen through October, and the partial lockdown of the economy into November, the damage seen in Q4 is likely to eat into the recovery seen in Q3, which means the numbers today are likely to be seen through the prism of being in the rear-view mirror, and somewhat old news.’

Today also saw the release of September’s UK Industrial Production figures, which rose from 0.3% to 0.5%.

Nevertheless, GBP traders are remaining cautious as growth slowed in September, with analysts now expected a recession to set in next year instead.

Alistair McQueen, the Head of Savings and Retirement at Aviva, explains:

‘Acute economic uncertainty is causing recessionary fears to surface again. Today’s positive figure for Q3 is unlikely to carry over to Q4, suggesting that the recession of 2020 looks set to resume next year.’

Meanwhile, Brexit remains a concern, with still no signs of progress towards a post-Brexit trade agreement between the UK and the EU.

As a result, Pound traders are jittery as a no-deal Brexit could seriously setback the British economy in 2021.

Euro (EUR) Rises Despite Grim Outlook for Eurozone Economy

The Euro rose today despite German consumer prices confirming forecasts and falling in October. The year-on-year German CPI fell 0.2% by national standards and 0.5% by EU-harmonized standards.

Nonetheless, EUR investors are cautious as the outlook for the Eurozone’s economy is bleak owing to Europe’s coronavirus situation.

Along with Germany and France, Italy is now expected to announce a nationwide lockdown as local Covid-19 infections continue to rise.

Giovanni Leoni, the vice-president of the Italian doctors’ federation, commented:

‘We need a general lockdown like the one in March and April, maybe for two or three weeks or a month, in order to bring the infection rate down. The number of admissions to intensive care is doubling every 10 days and at this speed it will be very difficult to guarantee care to patients with other diseases.’

As a result, Euro traders are becoming more concerned about a possible double-dip recession in the fourth quarter.

However, the EUR/GBP exchange rate has managed to edge higher on a worse outlook for the British economy. The UK economy being beset by Brexit and economic uncertainty as the year progresses.

Euro traders will also be looking ahead to today’s speech from ECB President Christine Lagarde. Any dovishness about the Eurozone would be EUR-negative.

GBP/EUR Forecast: Could a Dovish Bank of England Drag Down Sterling?

Tomorrow will see the release of the flash Eurozone GDP data for the third quarter.

If this falls below consensus, then we could see the single currency suffer.

Tomorrow will also see a speech from German’s Buba President Dr Jens Weidmann.

Again, any confirmation of a bleak outlook for the German economy – the largest in the Eurozone would be EUR-negative.

Pound investors will be monitoring tomorrow’s speech from the Bank of England’s (BoE) Governor Andrew Bailey.

If he is notably negative about Britain’s economy, then we could see the GBP/EUR exchange rate fall further.

Nevertheless, the GBP/EUR exchange rate will continue to be driven by Brexit developments.

As a result, we could see Sterling head higher on hopes of a post-Brexit trade agreement.

David Moore

Contact David Moore