Pound Euro Exchange Rate News: GBP/EUR Wavers as UK Economy Contracts

Pound Euro Exchange Rate Fluctuates on Mixed UK GDP Data

The Pound Euro (GBP/EUR) exchange rate is trading erratically as the UK economy contracted in March but reported a surprise growth in Q1.

At time of writing the GBP/EUR exchange rate is trading around €1.1480, relatively unchanged from this morning’s opening levels.

Pound (GBP) Undermined by Stuttering Economic Growth

The Pound (GBP) is struggling for sustained demand this morning as GDP growth data printed to mixed success. The UK economy unexpectedly shrank in March as industrial action and the cost-of-living crisis weighed heavy.

On a monthly basis, the UK economy contracted 0.3% against expectations of zero growth. A drastic fall in the service sector dragged the economy down as it declined by 0.5%, with a 1.4% fall in wholesale and retail trade. Darren Morgan, Office for National Statistics (ONS) commented:

‘The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.’

However, preventing any further losses was growth in the first quarter of 2023. Due to a strong January, the economy expanded 0.1% in the first three quarters of this year, matching Q4 of last year and meeting expectations. But the economy remains 0.5% smaller than before the pandemic, and the UK is the weakest performer in the G7.

Euro (EUR) Under Pressure from Mixed ECB Signals

Meanwhile, the Euro (GBP) also struggled for demand amid a lack of economic data. Mixed signals from European Central Bank (ECB) policymakers could be weighing on the Euro as investors attempt to anticipate the central bank’s next moves.

ECB Vice President Luis de Guindos commented that he believes inflation will undoubtably fall but remains concerned with core inflation and the service sector. However, he did add that further rate hikes could be necessary.

Meanwhile, ECB policymaker Joachim Nagel appeared more bullish and stated that the latest rate hike will not be the last. Speaking at a G7 meeting in Japan, Nagel added:

‘Current data did not indicate that the ECB should change its thinking on the need for further rate hikes. ‘We need to be sure that the latest inflation wave ends.’

Pound Euro Forecast: BoE Speech to Bolster the Pound?

Looking ahead, the Pound Euro exchange rate could see further movement with further speeches from both the BoE and ECB. BoE Chief Economist Huw Pill is set to comment on yesterday’s interest rate decision.

Elsewhere, another speech from ECB policymaker Luis de Guindos could also influence the Euro. Without any further economic data for either pairing, market sentiment could be the biggest drivers heading into the weekend.

Danny Tingle

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