Pound Euro (GBP/EUR) Exchange Rate Extends Post-GDP Upside
(Updated 16:30, 10/2/23) The Pound Euro (GBP/EUR) exchange rate ended this week’s trade on a positive note, recouping a significant portion of last week’s losses. At the time of writing, GBP/EUR is trading at around €1.1310, having gained 1.4% this week.
The Pound (GBP) enjoyed a boost early on Friday morning after the UK’s latest GDP data. The UK economy stalled in the fourth quarter of 2022, but this actually lifted Sterling as it meant the country avoided falling into a technical recession last year.
Meanwhile, the Euro (EUR) came under heavy selling pressure amid escalating tensions in the Russia-Ukraine conflict. Russia launched a fresh wave of strikes across Ukraine, with two missiles passing through Moldovan airspace. Reports suggested the missiles had also passed through the airspace of Romania – a NATO member. However, this turned out to be untrue.
The Pound Euro rate’s gains seemed limited amid a downbeat market mood, as GBP is considered a riskier currency than EUR.
Later in the session, some hawkish comments from European Central Bank (ECB) policymaker Isabel Schnabel lent the common currency some support. This trimmed GBP/EUR’s upside, although Sterling still posted impressive gains on the week.
Next week, the UK’s latest employment report and inflation rate reading could cause significant movement in the Pound. A strong labour market would likely boost GBP, while easing inflation could dent Bank of England (BoE) rate rise bets, thereby hurting the UK currency.
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Pound Euro (GBP/EUR) Exchange Rate Firms as UK Narrowly Avoids Recession
The Pound Euro (GBP/EUR) exchange rate rose this morning after new data showed that the UK narrowly avoided an economic recession at the end of last year.
At the time of writing, GBP/EUR is trading at €1.1299, up 0.2% from its overnight low.
Pound (GBP) Rises following UK GDP
The Pound (GBP) found some success this morning, with GBP investors cheering the UK’s latest GDP data. However, the economic report was mixed.
GDP growth flatlined in the fourth quarter of 2022, meaning the British economy managed to escape falling into a recession.
In addition, the third-quarter growth rate was revised marginally higher, with the UK economy contracting 0.2% rather than 0.3% in the three months from July to September.
However, December’s GDP printed below forecasts. In the final month of 2022, the economy shrank 0.5% – worse than the expected 0.3% contraction.
Meanwhile, business investment was unexpectedly strong in Q4. Investment grew by a surprisingly strong 4.8%, rather than declining by 0.3%.
At the time of writing, markets are picking apart the mixed data. While the UK economy managed to stay out of a technical recession, serious worries remain. However, the pick up in investment was a welcome surprise.
Chancellor Jeremy Hunt said that the latest data ‘shows our economy is more resilient than many feared.’ However, he also warned ‘we are not out the woods yet’.
"We're not out of the woods yet."
Chancellor Jeremy Hunt says the fact the UK avoided recession in the second half of last year shows the economy has an "underlying resilience".
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Victoria Scholar, Head of Investment at interactive investor, said that the outlook is still ‘bleak’:
‘Although the UK managed to technically stave off a recession, the growth picture remains bleak weighed down by industrial action and sky-high inflation which is driving the cost-of-living crisis for consumers and a cost of doing business crisis too.’
Nevertheless, the Pound strengthened as markets focused on the fact that the UK avoided a recession, although lingering fears seem to be limiting the upside.
Euro (EUR) Down amid Russian Missile Attack on Ukraine
As for the Euro (EUR), a notable lack of Eurozone economic data has left EUR struggling to find support today.
Currency traders are instead taking their cues from the latest Russia-Ukraine headlines, with worrying developments putting some pressure on the Euro.
Russia has launched a ‘massive’ wave of missile and drone attacks across Ukraine today. Explosions have been reported in Vinnytsia, Kharkiv, Zaporizhzhia, and even the capital Kyiv.
A Ukrainian general has also claimed that two Russian missiles passed through Moldovan and Romanian airspace before entering Ukraine.
This latest barrage of missiles comes as Russia prepares fresh new offensives to mark the anniversary of its initial invasion.
This troubling news is weighing on EUR exchange rates today.
Pound Euro Exchange Rate Forecast: Will Sterling Sustain Its Upside?
As the day unfolds we’re likely to see more reactions from economists and analysts scrutinising the UK’s GDP data. Sterling could hit a ceiling if commentators continue to point out that the longer-term picture is still concerning.
Meanwhile, risk appetite may also exert some influence over GBP/EUR. The Pound is far more risk-sensitive than the Euro. Therefore, if the mood remains sour then this could limit GBP’s gains, while a bullish shift in sentiment could propel the Pound even higher against the safer single currency.
Amid a dearth of economic data for the Eurozone, EUR exchange rates may continue to be affected by news about the Russia-Ukraine crisis. Further downbeat headlines could put more pressure on the Euro.
Later in the evening, the single currency could strengthen off the back of a speech by European Central Bank (ECB) policymaker Isabel Schnabel. As a more hawkish member of the ECB’s Governing Council, Schnabel could signal her support for further interest rate rises, thereby potentially lifting EUR.