Pound Euro Exchange Rate Pushes Higher as Eurozone Enters Fresh Recession

Jump in UK House Prices Shores up Pound Euro Exchange Rate

The Pound to Euro (GBP/EUR) exchange rate picked up on the back of a much sharper-than-expected uptick in the Nationwide housing price index.

As prices jumped 2.1% on the month in April this encouraged investors to pile back into Pound Sterling (GBP), betting on the resurgent strength of the UK housing market.

After the modest -0.3% contraction seen in March this sharp increase in prices added to hopes that the second quarter could see a greater degree of economic momentum.

Even so, as markets have already priced in high odds of an imminent economic rebound into GBP exchange rates this limited the potential for any major gains at this stage.

Deeper German GDP Contraction Weighs Heavily on Euro Exchange Rates

Support for the Euro (EUR), meanwhile, weakened in the wake of a disappointing first quarter German gross domestic product reading.

While forecasts had pointed towards a decline in the quarterly growth rate the drop from 0.5% to -1.7% still left investors with little cause for confidence.

With the Eurozone’s powerhouse economy failing to hold onto its momentum in the early months of 2021 worries over the economic outlook naturally mounted.

Although hopes for a second quarter growth rebound remain this was not enough to keep EUR exchange rates from weakening in response to the GDP report.

As the Eurozone also fell back into a state of recession, thanks to two consecutive quarters of negative growth, there appeared little reason to favour the single currency.

Rising German Retail Sales Forecast to Boost Euro Appeal

The Euro could find some limited support on Monday, however, with the release of March’s German retail sales data.

With markets expecting to see another solid monthly increase in consumer spending hopes of a potential German economic recovery are likely to rise.

Evidence of increased confidence among consumers, even as the quarterly growth rate contracts, could see the single currency pushing higher across the board once again.

Confirmation that the Eurozone’s raft of April manufacturing PMIs remained in positive territory may also offer encouragement to EUR exchange rates at the start of the week.

Pound Exchange Rates Look for Support on Finalised UK Manufacturing PMI

With April’s finalised UK manufacturing PMI also expected to confirm another solid month of growth, though, the Pound could also find traction.

As long as investors see reason to bet on the chances of an acceleration in the UK economy’s recovery from the impact of Covid-19 the Pound to Euro exchange rate is likely to benefit.

On the other hand, any negative revision to the finalised PMI could put something of a dampener on the Pound.

Another monthly dip in mortgage approvals could also undermine confidence in the outlook of the housing market, leaving GBP exchange rates vulnerable to a correction.

Louisa Heath

Contact Louisa Heath