Pound Euro Exchange Rate Firms on Upbeat UK Economic Outlook
(Updated 15:10, 9/7/21) The Pound Euro (GBP/EUR) exchange rate looks to end the week on a positive note, with the pairing rallying roughly 0.3% to strike €1.1670 this afternoon.
This uptick in Sterling comes as GBP bulls remain confident in the UK’s economic prospects this year in spite of May’s underwhelming GDP release, with hopes that the final lifting of coronavirus restrictions next month will turbocharge the economic recovery over the summer.
Meanwhile, the Euro appears to be coming under some modest pressure, following the release of the minutes from the European Central Bank’s (ECB) June policy meeting, after they reinforced the bank’s current dovish bias.
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Pound Euro Exchange Rate Muted Following Disappointing UK GDP Figures
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range so far today, after the UK’s latest GDP figures printed below expectations.
At the time of writing the Pound Euro exchange rate is trading at around €1.1644, almost unchanged this morning’s opening rate.
Pound (GBP) Undermined by Underwhelming GDP Release
The Pound (GBP) looks to limp over the finishing line this week, in the wake of some disappointing UK growth figures, published earlier this morning.
According to the Office for National Statistics (ONS), the UK economy expanded by 0.8% in May, slowing from a downwardly revised 2% in April and missing consensus estimates of a more robust 1.5% expansion.
The reopening of pubs and restaurants was a key contributor to growth in May, with the Food and beverage service sector growing by 34% as venues were allowed to start serving indoors for the first time this year.
However, this boost proved to be much less dramatic than that seen after April’s reopening of non-essential retail, with Sterling sentiment weakening as analysts express concern at the pace at which the UK’s economic recovery appears to have slowed.
Paul Dales, Chief UK Economist at Capital Economics, commented:
‘Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon.
‘This could be a sign that the recent rise in COVID-19 cases and the delay to the final easing in COVID-19 restrictions from 21 June to 19 July are hampering the recovery.’
As a result of May’s lacklustre GDP figures Capital Economics now estimates the UK economy won’t return to pre-pandemic levels until October, rather than August as previously forecast.
Euro (EUR) Consolidates ECB Driven Gains
At the same time, the Euro (EUR) is holding its ground this morning, after being catapulted higher on Thursday, following the publication of the European Central Bank’s (ECB) strategic review.
The ECB announced yesterday that it would be adopting a symmetric inflation target of 2%, a move which will allow the bank to leave interest rates at record lows for longer.
While the change makes the ECB ‘structurally more dovish’, the bank’s decision not to follow the Federal Reserve in committing to allow inflation to exceed its target to compensate for past weakness, which spurred the Euro to a three-week high against the Pound on Thursday.
Pound Euro Exchange Rate Forecast: UK Coronavirus Developments to Drive Sterling?
Looking ahead to next week’s session, it’s likely that UK coronavirus developments will act as a key catalyst of movement in the Pound Euro (GBP/EUR) exchange rate.
Boris Johnson is due to provide more detail on the government’s plan to lift all coronavirus restrictions on 19 July on Monday. But the PM is under considerable pressure from health experts to adopt a more cautious approach. amidst a startling rise in domestic coronavirus cases.
This could result in Sterling weakening at the start of the week if Johnson cedes that the reopening may need to be more gradual.
Meanwhile, EUR investors will also be keeping an eye on coronavirus developments, as the spread of the Delta variant drives a worrying surge of cases across the continent.