Pound Euro (GBP/EUR) Exchange Rate Climbs on Better-Than-Expected UK Data
The Pound Euro (GBP/EUR) exchange rate has risen so far today following news that Britain’s economy shrank by less than expected in May 2023. Meanwhile, European industrial production data has disappointed, heaping headwinds upon the Euro (EUR).
At the time of writing, GBP/EUR is trading at €1.1713, having trended up by over 0.2% in the past 24 hours.
Pound (GBP) Buoyed as GDP Data Impresses
The Pound (GBP) is enjoying a steady uptrend against the majority of its peers today, as May’s GDP reading printed above economists’ forecasts.
Britain’s economy contracted by 0.1% the month before last, rather than the 0.3% expected, as the extra bank holiday for King Charles’s coronation affected economic activity in the UK less than it had been assumed.
While economic contraction of any extent is considered bad news, GBP investors appear to be responding positively to the release, little heeding signs that the economy continues to be held back by the cost-of-living crisis and public sector strikes.
In the three months to May, the economy showed no growth whatsoever, yet there is a slim chance that if UK GDP avoids 0.1% drop in June GDP, the economy would be on track to avoid a contraction for Q2 as a whole.
Contributing toward upbeat sentiment, Darren Morgan, director for economic statistics at the ONS said:
‘Services were flat overall with health recovering, with less impact from strikes than in the previous month, and IT also had a strong month.’
Euro (EUR) Wavers as Industrial Production Disappoints
The Euro is trading in a mixed range against its peers today, as the latest industrial production reading from Eurostat revealed that activity in the Eurozone grew by 0.2% in May rather than the 0.3% expected.
Capital goods production advanced by only 1% following a 14.7% jump in April, although intermediate goods output was up by 0.5% after from a 0.9% decline. Output increased for both durable goods and non-durable consumer goods, but on a yearly basis, industrial production slumped 2.2%.
The news capped gains for the single currency, although EUR is not entirely without support, given the publication of the European Central Bank (ECB)’s monetary policy meeting accounts.
The accounts struck a hawkish tone, with officials admitting they were open to raising interest rates past July. Furthermore, the ECB confirmed that a ninth consecutive hike was all but guaranteed in July as inflation is forecast to stay above its 2% target until the end of 2025.
In the bank’s own words:
‘It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner… The view was held that the Governing Council could consider increasing interest rates beyond July, if necessary.’
Elsewhere, the Euro may have benefited from reduced support for the US Dollar (USD), given the strong negative correlation between the currencies.
GBP/EUR Exchange Rate Forecast: Quiet UK Docket to Inspire Losses?
The Pound Euro exchange rate may weaken tomorrow, as a lack of significant UK data leaves the Pound exposed to losses.
In Germany – the bloc’s largest economy – wholesale prices are expected to have fallen further in July, but such indicators of easing inflation are unlikely to trigger bearish trading given today’s hawkish ECB rhetoric.
Meanwhile, the Eurozone’s trade deficit is expected to have shrunk in May compared with a year earlier, potentially lending EUR further tailwinds.