Pound Euro (GBP/EUR) Exchange Rate Extends Upside on UK GDP and Dovish ECB
(Updated 16:10, 11/2/22) The Pound Euro (GBP/EUR) exchange rate has continued climbing this afternoon. Better-than-expected UK GDP data has supported the Pound (GBP), while dovish comments from European Central Bank (ECB) President Christine Lagarde have been weighing on the Euro (EUR).
At the time of writing, GBP/EUR is trading at around €1.1923, up 0.27% from today’s opening rate. This is the highest level since the Pound Euro pair slumped following the ECB decision last Thursday.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Strengthens on UK GDP Report
The Pound Euro (GBP/EUR) exchange rate has gained ground this morning after the UK’s GDP data printed better than expected.
Meanwhile the Euro (EUR) is under pressure from a stronger US Dollar (USD) following the US inflation print yesterday.
Pound (GBP) Gains on GDP Data
The Pound (GBP) is heading higher today as the UK’s GDP data beat forecasts.
Although the UK economy shrank month on month in December, the 0.2% contraction was far better than the 0.6% contraction economists had feared.
Overall, the UK economy grew by 7.5% in 2021. That’s the fastest growth since the 1940s and puts the UK top of the G7 for growth in 2021.
Rishi Sunak, the Chancellor of the Exchequer, commented:
‘Thanks to our £400bn package of support and making the right calls at the right time, the economy has been remarkably resilient; with the UK seeing the fastest growth in the G7 last year and GDP remaining at pre-pandemic levels in December.’
In terms of where the UK economy is in relation to its pre-pandemic level, the UK is in the middle of the G7 countries, with stronger growth than Italy, Germany and Japan, but not as strong as the US, France and Canada.
This positive economic news is boosting GBP this morning.
Euro (EUR) Muted by Stronger USD and Dovish ECB Comments
The Euro, meanwhile, is subdued due to its negative correlation to a stronger US Dollar.
Yesterday’s US inflation rate printed higher than expected, triggering volatility in USD. However, overnight the US Dollar regained its strength as Federal Reserve rate hike bets boosted its appeal.
As a result, the Euro is under some pressure this morning.
Furthermore, in an interview published today, European Central Bank (ECB) President Christine Lagarde cautioned against hasty rate hikes. Lagarde said:
‘[Raising interest rates] would not solve any of the current problems. On the contrary: if we acted too hastily now, the recovery of our economies could be considerably weaker and jobs would be jeopardised. That wouldn’t help anybody.’
These comments are weighing on the Euro today.
Pound Euro Exchange Rate Forecast: Can GBP/EUR Hold its Gains?
While the UK GDP data is undoubtedly positive, and makes for an upbeat headline, many economists have been quick to put the recovery into context.
Unlike some G7 countries, the UK remains below pre-pandemic levels due to a record contraction of 9.4% in 2020. Meanwhile, economists are warning that the coming year could see growth slow significantly. Red tape and trade snarl-ups caused by Brexit, along with the cost-of-living crisis, present major challenges for the UK economy in 2022.
If these concerns begin to weigh on investors today, GBP could lose some of its gains.
As for the Euro, concerns over the Russia-Ukraine crisis could throw another headwind at the single currency. If the situation deteriorates further, EUR may face more downside pressure.