Pound Euro (GBP/EUR) Exchange Rate Wavers Amidst Risk-Off Mood
The Pound Euro (GBP/EUR) exchange rate trades sideways this morning in response to some mixed European data. German GDP failed to meet expectations, while Eurozone inflation printed above forecasts.
At the time of writing, the Pound trades at €1.1745, virtually unchanged from today’s opening levels.
Euro (EUR) Falters on Mixed European Data
The Euro (EUR) is struggling to extend yesterday’s gains today, as German GDP fell short of expectations. Preliminary figures for the second quarter shows an expansion of 1.5%, as opposed to the 2% predicted.
The expansion demonstrates recovery, albeit lesser than expected; but further growth is needed to match pre-pandemic figures. GDP was still 3.4 percent lower in the second quarter of 2021 than in the fourth quarter of 2019, at 102.8 (unadjusted) compared with 108.2.
In Eurozone data, GDP has exceeded expectations for the second quarter, printing at 2 percent growth compared with the 1.5 percent expected. The bloc’s economic recovery gained momentum on the back of the continued re-opening efforts, helped by the rapid pace of COVID-19 vaccination and ongoing government support.
Inflation also surpassed expectations at 2.2 percent: the highest reading since October of 2018. The effect of energy, food, alcohol and tobacco prices helped to boost the figure, with energy alone demonstrating 14.1 percent inflation.
Reporting seems focused upon the positive figures, with analysts predicting further growth. Reuters’ Alison Williams observes:
‘Inflation is expected to accelerate further in the coming months… the figures are still unlikely to worry ECB policymakers, who have already warned of a temporary spike in inflation.’
Pound (GBP) Muted over Mixed Covid Sentiment
The Pound (GBP) is struggling to lift against its peers this morning as mixed messaging over coronavirus developments cap GBP gains.
The UK recorded 31,117 new Covid cases yesterday, up again on the day previous – indicating that the sudden upturn after a week of falling cases was not an anomaly.
Despite the rise, however – and in spite of repeated messaging advising caution – politicians are pressing for further easing of restrictions. Labour Leader Sir Keir Starmer has challenged the government to match Wales by bringing forward the date on which fully vaccinated people in England can avoid isolation.
‘This has been a summer of chaos for British businesses and British families,’ Mr Starmer said, urging the Prime Minister to match Wales in removing the isolation mandate on 7 August.
Appearing on television news earlier, Transport Secretary Grant Shapps said the government was being ‘cautious’ and that the 16 August revision remains the plan for now, echoing Boris Johnson’s remark that the date is ‘nailed in’.
Pound Euro (GBP/EUR) Exchange Rate Forecast: BoE Interest Rate Decision at the Fore
Looking ahead, an assortment of data next week has potential to move the Pound Euro exchange rate in either direction. The key event of the week will be the Bank of England (BoE)’s interest rate decision on Thursday.
Policymakers have maintained a dovish stance in previous speeches and conferences, reiterating that the bank does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made to achieve the two percent inflation target sustainably.
Any sign of hawkishness on Thursday will excite investors and could provide support to the Pound against its peers.
In terms of the Eurozone, retail sales and PMIs will reveal growth rates in both Germany and the wider Euro area. The data looks set to underwhelm for the most part, potentially lending tailwinds to the Pound in the GBP/EUR exchange rate.