As third quarter UK GDP was confirmed to have slowed today the Pound Sterling to Euro (GBP/EUR) exchange rate has slumped, with the Euro (EUR) strengthening in spite of the threat of imminent monetary loosening from the European Central Bank (ECB).
Prospect of ECB Monetary Easing Weighed on Euro (EUR) Demand
Some of the shine started to come off UK Chancellor of the Exchequer George Osborne’s Autumn Statement and Spending Review yesterday, reversing many of the earlier gains of the Pound (GBP). While the initial impression had been more positive than expected, the fine print revealed that a number of deeper budget cuts remained in spite of the publicised U-turn on controversial tax credit cuts. Concerns were also raised that the Office for Budget Responsibility’s (OBR) revised tax receipts, which were used to balance the latest budget, would not ultimately prove as strong as forecast.
Sentiment towards the Euro (EUR) was not overly positive on Thursday, however, as traders have struggled to gauge the extent of any monetary loosening measures that the European Central Bank (ECB) may introduce at its policy meeting next week. Policymakers are purported to be discussing a number of options, including an expansion of the current bond buying program or harsher negative interest rates to spur banks into further lending. As the prospect of fresh quantitative easing appears increasingly certain, the appeal of the single currency has declined, equally driven down by the relative strength of the US Dollar (USD).
Pound Sterling Currency News: GBP Downtrends Today as UK Economic Growth Slows on Quarter
Nevertheless, the GBP/EUR exchange rate has remained on a downtrend on Friday morning as Sterling continues to retreat against rivals. The third quarter GDP for the UK was confirmed to have slowed to 0.5% on the quarter, with weaker net trade dragging down domestic growth. A continued heavy reliance on the service sector will not offer great reassurance to pundits, who may be concerned by the uneven nature of the local economy’s strength. Coming on the heels of a disappointing GfK Consumer Confidence Survey this has thus done little to bolster demand for the Pound today.
In spite of the approaching December ECB policy meeting, the common currency has been showing some buoyancy ahead of the weekend, benefitting as limited domestic stimulus has seen the US Dollar soften somewhat. A raft of Eurozone confidence surveys due out this morning could also prompt further recovery for the Euro.
GBP/EUR Exchange Rate Forecast: Euro Predicted to Soften as German Retail Sales Decline
With little change predicted for Monday’s German inflation data and Retail Sales in the Eurozone’s powerhouse economy forecast to show a decline, the single currency is unlikely to remain dominant for long. Ahead of Thursday’s ECB policy decision demand for the Euro is forecast to decline, as the potential divergence in monetary policy between the ECB and the Fed is highlighted.
As UK Mortgage Approvals are expected to have declined on the month in October, however, the GBP/EUR exchange rate may struggle to particularly extend any gains.
Current GBP, EUR Exchange Rates
At time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was slumped in the range of 1.4205, while the Euro to Pound Sterling (EUR/GBP) pairing trended higher in the region of 0.7039.
