Pound Euro Exchange Rate Steady After UK GDP Contracts During Q1

The Pound Euro (GBP/EUR) exchange rate is steady this morning despite the UK’s GDP rate contracting during Q1 of 2021.

The Euro has found itself supported following the latest inflation rate data from Germany, with the GBP/EUR pairing currently trading around the 1.1648 level.

Pound (GBP) Steady Despite Fall in UK GDP

The Pound remains steady against the Euro this morning despite the latest GDP data from the UK for Q1 showing a contraction of 1.5%.

The fall in UK GDP is in line with the stricter restrictions implemented across the nation at the start of 2021 to help combat the coronavirus pandemic.

Samuel Tombs, chief UK economist at Macroeconomics, commented on the latest GDP figures, saying:

‘As before, the UK’s underperformance can be largely attributed to households’ spending, which fell by 3.9% quarter-on-quarter in Q1 and was 11.5% below its Q4 2019 peak.’

‘This chiefly was due to stay-at-home orders and commonplace home-working, both of which led to a sharp fall in services spending; in aggregate, households’ incomes have been unscathed by the pandemic, thanks to government policies.’

Sterling has also found support from the latest industrial production figures from the UK for March which rose more than first expected to 1.8% MoM.

Euro (EUR) Supported by German Inflation Rate

The Euro has found support this morning from the latest inflation rate data from Germany which came in line with the European Central Bank’s (ECB) target at 2% during April YoY.

Also supporting the Euro today is the latest industrial production figures from the Eurozone which have risen more than expected to 1.0% during March as many parts of the bloc began to open from lockdown measures.

Euro investors will this afternoon be focusing on the latest US consumer price data for April, which could cause EUR to weaken.

Marija Veitmane, senior multi-asset strategist at State Street Global Markets has spoken on the fears regarding higher inflation saying:

‘We suspect that the market knows about it, and is positioned for it. What we’re not going to get an answer for and is really crucial is whether this increase in prices is transitory as the Fed is telling us or is it something more persistent that market is worried about.’

Pound Euro Exchange Rate Outlook: Coronavirus Developments in Focus

A quieter second half of the week for both the UK and Eurozone will see many investors focusing on any coronavirus developments in the coming days.

England is preparing for its third stage of lockdown easing on the 17th of May after Prime Minister Boris Johnson confirmed earlier in the week that the easing can go ahead.

Investors will keep an eye on any spike in cases or deaths from coronavirus which could hamper the UK’s economic recovery in the coming weeks.

Georgina Clissold

Contact Georgina Clissold