Pound Euro (GBP/EUR) exchange rate slips as UK falls into technical recession
The Pound Euro (GBP/EUR) exchange rate fell to a nine-day low today after this morning’s GDP figures confirmed the UK fell into a technical recession last year. However, the Pound’s (GBP) downside so far seems limited.
At the time of writing, GBP/EUR is trading at €1.1693, only modestly down from this morning’s opening rate.
Pound (GBP) resists losses despite UK recession woes
The Pound is muted this morning although it is resisting steeper losses despite serious economic concerns following the release of the UK’s latest GDP figures.
The Office for National Statistics (ONS) reported that GDP fell by 0.3% in the three months to December, rather than a more modest predicted drop of 0.1%.
The contraction was put down to a breakdown in retail sales in the run-up to Christmas, as households cut spending amid the cost-of-living crisis.
This consecutive contracting figure means the UK fell into a technical recession in the second half of 2023, and has further fuelled Bank of England (BoE) interest rate cut bets in the wake of more signs of a struggling UK economy.
James Smith, Research Director at the Resolution Foundation, explains:
‘Britain has fallen into recession, and a far deeper living standards downturn. Even this weak data is flattered by a rising population. After accounting for population growth, the UK economy hasn’t grown since early 2022, and fallen far behind its pre-cost of living crisis path, with an equivalent loss of around £1,500 per person. The big picture is that Britain remains a stagnation nation, and that there are precious few signs of a recovery that will get the economy out of it.’
Fresh recession fears coupled with revived BoE rate cut bets have served to undermine the Pound, as it struggles to catch bids this morning following the release. However, Sterling’s losses so far seem limited in scope, with a cautiously upbeat mood perhaps cushioning the increasingly risk-sensitive currency.
Euro (EUR) rangebound following ECB Lagarde speech
The Euro (EUR) is treading water this morning following a speech from European Central Bank (ECB) President Christine Lagarde earlier this morning.
Lagarde testified before the Committee on Economic and Monetary Affairs (ECON), where she discussed the importance of remaining ‘data-dependent’ and cautioned on the need to ‘be confident that it will lead us sustainably to our 2% target.’
She continued:
‘Incoming data continue to signal subdued activity in the near term. However, some forward-looking survey indicators point to a pick-up in the year ahead.’
Lagarde’s comments surrounding inflation and remaining data-driven has left the Euro trapped in a narrow range this morning, amid a lack of further guidance from the central bank’s President.
Pound Euro exchange rate forecast: UK retail sales to bolster the Pound?
Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate will likely be the release of the UK’s latest retail sales, expected tomorrow.
The data is forecast to report 1.5% growth in January, a significant rise in domestic sales and a recovery from December’s 3.2% contraction.
Should the data confirm that UK retail sales rebounded in January, this could in turn bolster GBP exchange rates.
Turning to the Euro, an absence of upcoming data releases may leave EUR investors eyeing up the latest ECB speech.
Policymaker Isabel Schnabel is due to deliver a lecture tomorrow. Should she echo her colleague’s cautious tone, the Euro may trend lower.