Pound Euro (GBP/EUR) exchange rate flat despite UK economic expansion
The Pound Euro (GBP/EUR) exchange rate is trading within narrow boundaries this morning, despite signs of improving UK economic activity.
At the time of writing, GBP/EUR is trading at around €1.1700, showing little movement from the morning’s opening rates.
Pound (GBP) muted despite improving economic activity
The Pound (GBP) is trading flatly this morning, despite signs of improving economic growth in the UK.
The morning’s GDP data for January printed in line with forecasts, showing a 0.2% growth in economic activity.
This sparked hopes that the UK will evade a prolonged recession, with future months expected to show further improvements.
James Smith, Developed Markets Economist at ING, commented:
‘We think the decline in overall fourth quarter GDP, which marked the second consecutive quarter of negative growth and therefore a technical recession, is unlikely to be repeated in the first quarter of 2024.’
January’s growth was predominantly driven by retail sales, with industrial action pressures limiting its scope. Furthermore, manufacturing output was found to have softened, additionally capping the UK’s capacity for growth.
Additionally, the three-month average reflects a 0.1% contraction, which is likely serving to temper the Pound’s appeal.
Euro (EUR) capped by dismal industrial production data
The Euro (EUR) is enduring muted trade this morning, following the release of the latest Eurozone industrial production data.
In January, production in the bloc tanked by an unexpected 3.2%, far below forecasts of 1.5% fall. This demonstrated that activity had deteriorated to its worst levels since March 2023, dampening the bloc’s economic outlook.
Analysts at ING commented that:
‘The production spike in December was too good to be true, January saw a -3.2% decline. This means that 1Q GDP is under pressure again as the eurozone economy continues to broadly stagnate.’
However, the Euro was able to shrug off the dismal reading and remain afloat against its peers, amid quiet trading conditions.
Pound Euro exchange rate forecast: ECB rhetoric in focus
Looking ahead for the Euro, the main driver of movement is likely to be a series of speeches from ECB policymakers.
Chiefly, ECB Vice President Luis de Guindos is due to speak on Thursday. With the central bank’s communication recently trailing a June interest rate cut, dovish comments from him could weaken the Euro.
This is followed on Friday by a speech from ECB Chief Economist Philip Lane. If he carries on the dovish approach, EUR may soften into the end of the week’s session.
For the Pound, impactful data releases are few and far between through to the end of the week. Because of this, Sterling is likely to be left exposed to shifts in the market mood.
As an increasingly risk-sensitive currency, GBP could gain ground against safer assets if trading conditions brighten. However, bearish trade could weaken Sterling.