GBP/EUR Exchange Rate Buoyed as Eurozone Data Misses

GBP/EUR Exchange Rate Firms on Lacklustre EUR Data

The Pound to Euro (GBP/EUR) exchange rate is trending higher this morning, rebounding from a one-week low, following the release of some disappointing data from the Eurozone.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1086, up roughly 0.4% from this morning’s opening levels.

Euro (EUR) Slips on Disappointing Data Releases

The Euro (EUR) finds itself on the back foot this morning, in the wake of some lacklustre Eurozone data releases.

According to data published by European Statistics Agency, Eurostat, the Eurozone’s consumer price index showed that the bloc remained in a state of deflation last month, with a reading of –0.3%.

This was below expectations for a modest rise to –0.2% and was the fourth consecutive month in which inflation has languished at a four-year low.

Perhaps even more worrying however was the publication of the accompanying retail sales figures, which reported that sales growth collapsed from 1.4% to –6.1% in November, its worst levels since April at the height of the first wave of coronavirus cases on the continent.

The downside in the Euro was further accelerated amidst a rebound in the US Dollar (USD), due to the negative correlation in the pairing.

Pound (GBP) Tempered by Dour Economic Outlook amid New Lockdown

The Pound (GBP), meanwhile, has found its advance against the Euro (EUR) tempered somewhat this morning by ongoing concerns over the economic impact of the new lockdowns in England and Scotland.

With economic activity in the UK curbed significantly by the strict new measures, it appears safe to assume that the country is heading towards another contraction of growth in the first quarter of 2021.

Analysts at Goldman Sachs predict:

‘Our estimates suggest that the hit from the latest restrictions will be notably smaller than in April (as factories remain open and activity has become less sensitive to restrictions) but somewhat larger than in November (as schools are closed).

‘The uncertainty around near-term activity is large, with risks skewed towards a larger Q1 contraction in light of the unpredictability of the new virus strain.’

With the UK’s economic recovery under threat, there is speculation that the Bank of England (BoE) will also be forced to ease its monetary policy again, something which is further limiting the appeal of the Pound this morning.

GBP/EUR Exchange Rate Forecast: Rise in Eurozone Unemployment to Weigh on the Euro?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may look to extend its recovery tomorrow with the publication of the Eurozone’s latest jobs report, amidst forecast the unemployment rate in the bloc will have risen again in November.

Also, in focus for EUR investors at the end of the week will be the publication of Germany’s industrial production figures. Will a slowing of factory output in Europe’s largest economy in November put a further dampener on the single currency?

At the same time, the Pound could struggle to extend its recovery as Sterling sentiment is likely to remain dejected amidst a mix of lockdown uncertainty and concerns over the pace of vaccine rollouts in the UK.

Matthew Andrews

Contact Matthew Andrews