Pound euro (GBP/EUR) wavers near two-week high as British GDP disappoints

Pound euro (GBP/EUR) exchange rate wobbles amid meagre UK economic growth

The pound euro (GBP/EUR) exchange rate continues to trend higher this morning following the UK’s latest GDP print, as surmounting European Central Bank (ECB) interest rate bets stifle the common currency.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1719, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers amid lacklustre GDP report

The pound (GBP) is mixed this morning following weaker-than-forecast UK growth in February.

While the UK economy expanded by 0.1% in February, the marginal uptick seemed to disappoint markets, indicating an ongoing period of economic fragility throughout Britain.

Though economists remain optimistic that the UK economy appears to be turning a corner after dipping into a technical recession last winter, the below-forecast GDP print is serving to dampen investor interest in the pound so far today.

Hailey Low, Associate Economist at NIESR, noted:

‘On the back of exiting a shallow recession in 2023, this seems to be a turning point, but in a broader perspective, the UK economy has flatlined since 2022.

Increasing productivity will be a constant challenge that requires structural changes and long-term spending commitments to public investment and infrastructure.’

Euro (EUR) quiet amid dialled up rate cut bets

The euro (EUR) is struggling to gain ground against its rivals this morning as Germany’s latest inflation data propels European Central Bank interest rate cut speculations.

Germany inflation cooled to 2.2% in March 2024, significantly falling from the previous month’s 2.5% and easing to its lowest point since May 2021.

The dip was primarily driven by easing food prices, which have declined for the first time since February 2015. Similarly, ongoing deflation for energy prices accelerated last month, falling by 2.7%.

In the wake of yesterday’s dovish shift from senior ECB policymakers, news of cooling inflation in the Eurozone’s economy further paves the way for the central bank to begin loosening its monetary policy in June.

Economists at HSBC said in a note:

‘Our central view remains that, from June, the ECB will cut 25 basis points every other meeting until the key deposit rate reaches 2.5%.’

Pound euro exchange rate forecast: ECB speech to drive volatility?

Looking ahead, a lack of further macroeconomic releases in the Eurozone as the week draws to a close brings ECB commentary into focus. Central bank policymaker Frank Elderson is due to speak this afternoon, with any dovish rhetoric likely to further deter investor interest in the common currency.

Following yesterday’s shift towards more accommodative language, any additional suggestion that the ECB is leaning towards lowering its base rate could fuel surmounting rate cut speculations.

For the pound, a lack of further releases could see GBP left vulnerable to a fluctuating market sentiment. The increasingly risk-sensitive pound may find support should appetite for risk improve. Alternatively, a spell of gloomy trade may limit Sterling’s movements against its safe-haven rivals, allowing EUR to take precedent.

Elsewhere, speeches from Federal Reserve policymakers could drive movement within the pound euro exchange rate. Hawkish Fed commentary could see the US dollar (USD) strengthen, which in turn could sink EUR, due to the currency pairing’s negative correlation.

Yasmine Arasteh

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