Pound Euro (GBP/EUR) Exchange Rate Retreats on Hotter-than-Expected Eurozone GDP Release

Pound Euro Exchange Rate Slumps on Upbeat Eurozone GDP Figures

The Pound Euro (GBP/EUR) exchange rate is faltering this morning. A stronger-than-expected Eurozone GDP release weighing on the pairing.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1590. Down roughly 0.3% from this morning’s opening rate.

Euro (EUR) Firms on Stronger-than-Expected GDP figures

The Euro (EUR) is strengthening this morning in response to the Eurozone’s latest GDP figures.

The bloc’s latest GDP estimate suggested the Eurozone economy grew by 0.8% in the second quarter. Beating the previous estimate of a 0.6% expansion.

Stronger-than-expected German industrial production figures are also extending some support to the single currency.

According to data published by Destatis, industrial production contracted by 0.3% in July. This was down from an upwardly revised 0.8% expansion in June but beat forecasts of a 0.5% slump.

However the figures offered only limited upside to the Euro. Despite beating expectations July’s figures still point to Germany slipping into a recession later this year.

Economists at Capital Economics, said:

‘German industrial output fell a bit less than anticipated in July but that was mainly due to a rebound in construction activity and there were signs that manufacturing production is starting to be hit hard by the energy crisis.

‘We continue to expect that a contraction in industrial output in the remainder of the year will contribute to plunging the German economy into recession.’

Pound (GBP) Stumbles amid Energy Price Freeze Doubts

The Pound (GBP) is trading on the back foot this morning, amid the uncertainty of Liz Truss’s new government.

Sterling initially shot higher yesterday amid report the new Prime Minister would be taking swift action to freeze energy prices. GBP investors were hopeful the move could lead to a shallower recession in the UK.

However, the Pound subsequently shed most of these gains amid concerns the price freeze will be funded by a massive increase in government borrowing.

GBP investors are also wary about Truss’s other economic policies. Economists have warned her planned tax cuts could stoke inflationary pressures in the UK.

Applying additional pressure to the Pound this morning are comments from Bank of England (BoE) policymakers as they testify before the UK Treasury Select Committee.

GBP investors were particularly unnerved by the BoE’s Catherine Mann as she suggested ‘More forceful bank rate moves open door for policy hold or reversal later.’

Pound Euro Exchange Rate Forecast: Will a 75bps ECB Hike Propel EUR Higher?

The European Central Bank’s (ECB) latest interest rate will undoubtedly act as the main catalyst of movement in the Pound Euro (GBP/EUR) exchange rate on Thursday.

Consensus estimates currently predict the ECB will opt for another 50 basis point rate hike this month.

However with Eurozone inflation at a record high and showing no signs of slowing, there are forecasts the bank could instead deliver a 75bps hike.

A bumper hike could see the Euro roar higher in the latter half of the week, potentially recouping its losses from the start of the week.

Meanwhile, the spotlight for GBP investors will be the expected announcement of Liz Truss’ energy support package.

With her plans for a price freeze now widely known, the focus will be on how the new PM plans to fund it. Will concerns over a dramatic increase in government borrowing weigh on the Pound?

Matthew Andrews

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