Pound Euro (GBP/EUR) Exchange Rate Softens as EU Optimism Grows
The Pound Euro (GBP/EUR) exchange rate is subdued today, as yesterday’s mixed data and rising Covid cases weigh on Sterling.
The Euro (EUR), meanwhile, is finding support as optimism grows around the Eurozone’s recovery. European stock markets are on track for a fourth week of winning while the EU’s accelerating vaccination programme gains on the UK’s.
Pound (GBP) Dented by Mixed Data
The Pound (GBP) is softening this morning following yesterday’s mixed data and another rise in daily Covid cases.
Yesterday, data from the Office for National Statistics (ONS) showed that UK GDP grew by 4.8% in the second quarter of this year, with the economy recovering strongly as more restrictions were lifted.
For some, the data illustrate the positive direction of the UK economy. Ruth Gregory, senior economist at Capital Economics, said:
‘We are comfortable with our view that monthly GDP will return to its February 2020 pre-pandemic size by October and that the economy may yet surprise most forecasters by emerging from the pandemic without much scarring’.
However, the 4.8% GDP growth was below the 5% predicted by the Bank of England (BoE), and UK GDP still remains 4.4% below its pre-pandemic peak, putting it last among the G7 nations in terms of GDP recovery since the pandemic began.
In addition, a trio of other reports dented GBP: UK industrial production unexpectedly shrunk by 0.7%; the UK’s trade deficit widened by £2.3bn amid a fall in exports; and business investment grew by a meagre 2.4%, rather than the 10.5% forecast.
In the absence of UK data today, these lacklustre figures could continue to drag on the Pound as this week’s session comes to a close.
Meanwhile, UK air travel is lagging behind European flights. Gatwick has said that while travel bookings to Germany and France are up to over half their pre-pandemic levels, UK bookings are only at 16%.
Gatwick CEO Stewart Wingate argues that a simplification of travel rules, particularly around PCR tests, could help to rekindle demand. Yet the UK’s higher Covid rate is likely also a factor, with an average of 42.6 cases per every 100,000 in the UK versus 12.4 in the EU.
The UK’s Covid situation may continue to weigh on the Pound as Covid cases continue to rise. Yesterday’s daily confirmed cases hit 33,074, the largest number of new cases in three weeks, while the weekly total was up by 15,800 (8.6%) from the previous seven days.
Euro (EUR) Firms on Growing Optimism
The Euro (EUR) is strengthening today, with European stock markets set for their fourth week of gains as optimism in the Eurozone’s economic recovery grows.
This morning, the pan-European Stoxx 600 hit a new record high as recent strong company results and an improving Covid outlook boost European morale.
Despite a sluggish start, the EU’s vaccine rollout has accelerated. The bloc has overtaken the US in terms of both first and second doses and is on track to surpass the UK within a few weeks; Malta, Ireland, Denmark, Belgium, Portugal and Spain are already ahead.
The higher travel bookings for European countries mentioned above also suggest a stronger recovery in the European tourism sector, which could further act as a tailwind for the single currency.
Finally, the bloc’s latest balance of trade figures printed just shy of expectations to show a €18.1bn trade surplus. This could further boost the Euro as markets digest the data.
Pound Euro Exchange Rate Forecast: GBP/EUR Could Stay Subdued
With no more data coming out from either side, it’s possible the Pound Euro exchange rate will remain subdued for the rest of the day, though any business or Covid developments could influence the pair.
The US consumer sentiment index from the University of Michigan this afternoon could potentially drive some movement in EUR. If the index beats expectations and boosts the US Dollar (USD), the Euro may weaken on account of the currencies’ negative correlation.