Pound Euro Exchange Rate Firms as UK Posts Better-than-Expected Growth
The Pound Euro (GBP/EUR) exchange rate is strengthening as UK GDP growth figures surprise to the upside.
At time of writing the GBP/EUR exchange rate is trading around €1.1307, a 0.38% leap from this morning’s opening levels.
Pound (GBP) Supported by a Return to Growth
The Pound is enjoying some modest strength this morning against its peers as the economy unexpectedly expanded 0.3% MoM in January. Against expectations of a modest 0.1% increase after a 0.5% fall in December, GDP growth buoyed investors.
Ongoing industrial action and cost-of-living crisis weighed heavily at the tail end of last year and continues to prevent a strong recovery. However, the better-than-expected figure could give Chancellor Jeremy Hunt more breathing room when it comes to setting out the government’s tax and spending plans at next week’s budget.
With the return to growth in January, the UK could avoid a recession. However, optimism isn’t shared by all, which could be limiting gains for Sterling. Yael Selfin, Chief Economist at KPMG UK, warns that a recession could still be a possibility, Selfin said:
‘The marked fall in wholesale gas prices and easing of supply chain disruptions provided a welcome boost to economic prospects at the start of 2023. But this may not be sufficient to stave off a recession in the first half of this year, as consumer spending remains weak with households continuing to be squeezed by elevated prices and higher interest rates.’
Euro (EUR) Quiet Despite Elevated Rate Hike Bets
Meanwhile, the Euro is subdued this morning amid a relative lack of major data. The negative correlation the Euro shares with the US Dollar reaped the rewards of a weakening ‘Greenback’ yesterday.
Turning to today, and no surprises in German inflation data means interest rate hike expectations remain elevated. With headline CPI in Europe’s largest economy confirmed at 8.7%, the rate far above the 2% target, serves only to bolster further hikes.
Elsewhere, further headlines from Ukraine could be sapping demand. Yesterday’s shelling of Ukraine saw a wave of at least 80 long-range missiles strike critical infrastructure. With 11 civilians reported dead, concerns are mounting of further escalations in the conflict.
Pound Euro Forecast: Lagarde Speech to Rally the Euro?
Looking ahead, the Pound Euro exchange rate could see further movements with a speech later on. European Central Bank (ECB) President Christine Lagarde is scheduled to speak. However, with the central bank entering its ‘quiet phase’ before next week’s policy update, Lagarde is unlikely to make many comments alluding to the monetary policy.
Meanwhile, the Pound will be heading into the weekend trading on market sentiment. Stronger-than-expected GDP growth data could continue to propel Sterling higher to close the week out.