Pound Euro Exchange Rate Steady as UK Economy Recovers above Pre-Pandemic Level

Pound Euro (GBP/EUR) Exchange Rate Holds near €1.20

The Pound Euro (GBP/EUR) exchange rate is steady so far this morning as UK GDP data for November showed the country’s economy recovered to pre-Covid-19 levels.

GBP/EUR continues to hover below €1.20 to trade at €1.1978 at the time of writing on Friday morning.

The view from some investors that UK growth figures may dip again when data becomes available for when Omicron disrupted the service sector in December appears to be limiting Sterling gains.

Pound (GBP) Bolstered as UK GDP Beats Forecast

The Pound (GBP) has firmed at the start of Friday’s session after UK GDP data for November indicated the UK economy has moved above its pre-pandemic level.

Figures showed better-than-expected growth of 0.9% in November, above forecast of 0.4% and up from October’s 0.2% growth.

The strong growth has pushed UK GDP 0.7% above the pre-pandemic level in February 2020 for the first time.

The Office for National Statistics chief economist Grant Fitzner commented:

“The economy grew strongly in the month before Omicron struck with architects, retailers, couriers and accountants having a bumper month. Construction also recovered from several weak months, as many raw materials became easier to get hold of.

“This meant that monthly GDP exceeded its pre-pandemic level for the first time in November.”

However, November’s figures were before the Omicron variant hit the UK, which likely dented consumer confidence and could mean a dip in UK GDP growth.

Head of economics at the British Chambers of Commerce, Suren Thiru, said:

“Stronger growth in November is likely to be followed by a modest fall in output in December and January, as consumer caution to socialise and spend, and mounting staff absences sparked by Omicron and plan B limit activity.

“While the UK economy should rebound once plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022.”

Concerns over the UK’s growth outlook and economic activity in December and January as the Omicron variant swept the country seems to have limited the positive impact of November’s better-than-expected growth.

Euro (EUR) Pressured by German Growth Data

The Euro (EUR) is struggling today after Germany’s GDP growth data for 2021 showed the Eurozone’s powerhouse economy is yet to recover from the Covid-19 pandemic.

The data compiled by Germany’s Federal Statistical Office showed growth figures met expectations of 2.7% in 2021, leaving the German economy 2% smaller than it was at the end of 2019.

Another wave of Covid-19, restrictions and supply chain issues disrupted German economic activity, with manufacturing particularly feeling the impact.

Dr. Georg Thiel, president of the Federal Statistical Office, commented:

“Despite the continuing pandemic situation, more delivery bottlenecks and material shortages, the German economy managed to recover from the sharp fall last year although the economic performance has not yet reached its pre-crisis level again.”

Meanwhile, trade data for the Eurozone has also dented EUR sentiment after figures unexpectedly showed a trade deficit in November, the first trade gap since January 2014.

Forecasts had pointed to a surplus of €11.5 billion but instead recorded a deficit of €-1.5 billion, as imports surged 32% and exports only rose at 14.4%.

Pound Euro Forecast: GBP/EUR to Continue Holding below Key Level?

The Pound Euro exchange rate looks to continue pushing the €1.20 level going into the weekend on cautious UK economic optimism and expectations for a Bank of England (BoE) interest rate hike at its February monetary policy meeting.

However, further UK political uncertainty may weigh on Sterling sentiment if the furore over Downing Street parties during tight Covid restrictions threatens to create instability in the government.

A speech by European Central Bank (ECB) President Christine Lagarde on Friday afternoon may provide the Euro with some support if she echoes recent comments from Vice President Luis de Guindos that ‘perhaps inflation won’t be as transitory as forecast’.

Andrew Roberts

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