Pound Euro (GBP/EUR) Exchange Rate Wavers as UK GDP Contracts
The Pound Euro (GBP/EUR) exchange rate is trapped in a narrow range this morning, after UK GDP printed below market expectations, whilst retail figures rose more than expected.
At the time of writing, GBP/EUR is trading at €1.540, virtually unchanged from this morning’s opening rate.
Pound (GBP) Rangebound amid Mixed Data
The Pound (GBP) is trading sideways this morning, as better-than-expected retail figures are offset by weaker than expected growth data.
The latest UK GDP figures revealed that the economy shrank by 0.1% in the third quarter, rather than stagnating as previously forecast.
In contrast, UK retail sales printed above expectations. November’s data showed that retail sales increased by 1.3%, rather than a forecast 0.4% rise, and a jump up from last month’s 0%. The results confirmed this to be the strongest growth in UK retail sales since January.
Investec Economist Ellie Henderson commented:
‘The national accounts release indicated an economy which is progressing slower than was first reported, making a winter recession far more likely, but the retail sales report for November sprinkled a little bit of festive cheer, blasting past consensus.’
The GDP figures have sparked fears the UK could have slipped into a recession in the second half of 2023, with experts predicting this could push the Bank of England (BoE) to start cutting interest rates sooner than previously expected, ultimately sapping demand for the Pound.
The Chief Economic Adviser to the EY Item Club Martin Beck said:
‘The Bank of England [is likely to] retreat from its hawkish rhetoric, meaning interest rates could be cut earlier and more significantly than many had been anticipating.’
Euro (EUR) Muted amid Lack of Data
The Euro (EUR) is wavering today following several days of no notable Eurozone data leaving the currency trading without a clear direction.
The single currency managed to firm yesterday on the back of its negative correlation with the US Dollar, after the US GDP figure was revised down, undermining USD exchange rates.
However, a continued lull in Eurozone data may leave the single currency trading on market mood alone before the holidays.
Pound Euro Exchange Rate Forecast: Thin Trading Conditions to Limit GBP/EUR Movement?
Looking ahead, any significant movement for the GBP/EUR exchange rate is unlikely, as European markets close for Christmas.
Following the festive period, data releases are thin on the ground for both the Pound and the Euro in the run up to the new year, potentially leaving the currencies trading on risk appetite.
Should an upbeat mood prevail, this may lend Sterling some support. However, should market sentiment sour, this may ultimately bolster the Euro.