Pound Euro (GBP/EUR) exchange rate retreats from multi-month high amid improving Eurozone GDP

Pound Euro (GBP/EUR) exchange rate slumps amid upbeat Eurozone GDP

The Pound Euro (GBP/EUR) exchange rate is retreating from a six-month high this morning, as the latest GDP data shows that the Eurozone managed to skirt a technical recession last year.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1697, down approximately 0.3% from this morning’s opening rate.

Euro (EUR) edges higher following GDP data

The Euro (EUR) is drifting higher this morning as the latest GDP data flatlined, rather than contracting as economists had expected.

While the Eurozone’s peripheral countries experienced higher-than-forecast growth, larger economies including France and Germany reported lacklustre growth.

Overall, GDP in the Eurozone hit 0% in last year’s final quarter, up from -1% in the previous quarter and thereby narrowly missing a technical recession in 2023.

While some economists have since offered bleak projections for the Euro area in 2024, predicting a sluggish recovery period, Michael Field, European Market Strategist at Morningstar, expressed optimism over the latest data, stating:

‘On the positive side, despite record high interest rates and high inflation levels not seen since the 1970’s, the euro area economy successfully managed to avoid a recession.’

Despite concerns surrounding economic stagnation, the Eurozone’s narrow escape from recession last year may keep the common currency afloat as today’s session progresses.

Pound (GBP) stumbles amid data lull

The Pound (GBP) is moving without a clear direction this morning amid a lack of notable economic data releases.

Ahead of the Bank of England’s (BoE) highly impactful monetary policy update this week, surmounting pressure for a spring rate cut is serving to sour Sterling sentiment today.

Following last week’s influx of bleak data reports, ongoing concerns that persistently high interest rates are stifling economic activity in the UK weigh heavily on the Pound.

In turn, investors and economists alike are betting on a turn towards more accommodative policy in the coming months, as the central bank tries to ease price pressures and reinject a sense of momentum into the UK economy.

Pound Euro exchange rate forecast: Eurozone inflation data to boost ECB rate cut bets?

Looking ahead, a data-heavy day for Germany tomorrow may serve to drive significant EUR volatility. Economists expect to see a significant increase in retail sales throughout December, likely to boost EUR sentiment with 0.7% growth, significantly up from a 2.5% contraction in the previous month.

However, EUR’s gains may be trimmed later in the session, with German inflation forecast to have cooled to 3%, down from 3.7%, in January’s year-on-year report. Signs of easing price pressures within the Eurozone’s largest economy may see the common-currency falter, amid rising ECB rate cut speculations.

The core catalyst of EUR movement this week is likely to come on Thursday, with the latest Eurozone inflation report. January’s annual inflation figure is due to cool slightly to 2.8%. Should inflation in the Euro area continue to move on a steadily downwards trajectory, the case for ECB rate cuts in the first half of the year may grow, denting EUR.

Looking to the UK, the BoE’s latest interest rate decision is due for release on Thursday. While markets are widely expecting policymakers to keep rates unchanged at 5.25%, any accompanying guidance from the central bank will likely be pivotal for GBP. Should policymakers continue to strike hawkish, the Pound may find some support amid waning rate cut bets.

Yasmine Arasteh

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