Pound Euro (GBP/EUR) Exchange Rate Firms on UK Economic Growth
(UPDATED 30/6/23, 17:00)
The Pound Euro (GBP/EUR) exchange rate is climbing this afternoon as GBP investors cheer the latest economic data for the UK. With the UK ending the first quarter of 2023 on a high as it expanded 0.1%, the Pound managed to claw back some losses before heading into the weekend.
At time of writing the GBP/EUR exchange rate is trading around €1.1639, a 0.26% jump from the morning’s opening levels.
Original article continues below…
GBP/EUR Exchange Rate Climbs amid Easing Euro Area Inflation
The Pound Euro exchange rate is firming after Eurozone inflation eases further than expected to 5.5%, with core inflation continuing to accelerate.
At time of writing the GBP/EUR exchange rate is trading around €1.1639, a 0.29% jump from the morning’s opening levels.
Euro (EUR) Slips as Inflation Eases Cools Further than Expected
The Euro (EUR) is softening this morning in the wake of the latest inflation data for June. Against expectations of headline CPI easing to 5.6%, the figure cooled further than expected as headline CPI eased to 5.5%. Falling energy prices were the biggest driver in softening inflation.
The latest reading represents the lowest inflation level since January 2022, but remains far above the European Central Bank’s (ECB) target rate of 2%. Furthermore, core inflation, stripping out volatile prices such as energy and food, continue to pick up pace as it accelerated by 5.4%. Despite easing modestly, the figure is still close to the recent peak of 5.7%, and is unlikely to deter the ECB from continuing to raise interest rates.
Elsewhere, unemployment rate in the Eurozone also met predictions and remained at 6.5%. In line with expectations, the figure remains at historically low levels, further highlighting a tight labour market. EUR investors could be buoyed on the prospect of the ECB to continue their aggressive tightening path.
Pound (GBP) Buoyed by Avoiding Winter Recession
Meanwhile, the Pound (GBP) found moderate strength after confirmation of the UK economy grew by 0.1% in the first quarter of 2023.
The Office for National Statistics (ONS) confirmed modest expansion in the opening three months of the year, confirming the UK avoided a recession over the winter. The economy managed to record growth across all major sectors, cheering GBP investors. The ONS said of the data:
‘In output terms, the services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by a revised 0.4% (previously 0.7%), while the production sector grew by 0.1%, with a revised 0.6% growth in manufacturing (previously 0.5%).’
However, despite narrowly escaping a winter recession, surging interest rates means the economy is teetering on the edge of falling into one by the end of the year. Thomas Pugh, economist at RSM UK, warned of the economic outlook for the UK:
‘We currently think the economy flatlined in Q2 and then will grow by around 0.2% q/q in Q3 and Q4 but further rises in interest rates could easily push that into the negative.
‘In any case, the big picture is that the economy could be no larger in 2024 than it was pre-pandemic.’
Pound Euro Forecast: Stuttering Manufacturing Sectors to Weigh Heavy?
Looking ahead to next week, the Pound Euro exchange rate could see further fluctuations with the final reading for both UK and Eurozone manufacturing PMIs. With both sectors expected to contract, both the Pound and Euro could offset each other’s slips.
The UK manufacturing sector is predicted to remain in contraction territory for the 11th month amid a sharp decline in new orders due to subdued demand. As for the Eurozone, their situation appears to be equally as dire as soaring borrowing costs and the worst decline in new orders in seven months.