EUR/GBP Exchange Rate Firms on Upbeat GDP Release
The Euro Pound (EUR/GBP) exchange rate is trending up so far today, as a better-than-expected GDP release in the bloc buoys the Euro (EUR). Meanwhile, Pound (GBP) investors take note of speeches from several of the Bank of England (BoE)’s foremost policymakers.
At the time of writing, EUR/GBP is trading at €0.8633, up 0.4% from today’s opening levels.
Euro (EUR) Buoyed as Economic Data Revised Higher
The Euro is firming against the majority of its peers following the release of the Euro area’s third GDP estimate for the second quarter. The data printed at 0.8% rather than 0.6% as expected.
According to Eurostat, the economy grew at its strongest rate in three quarters, with household spending the main driver of expansion. Across the grouped economies, Italy and Spain both demonstrated 1.1% growth, while France’s GDP grew by 0.5% and Germany lagged behind at 0.1%.
The release has helped to offset headwinds relating to downbeat data from Germany this morning. Industrial production in the bloc’s largest economy fell by 0.3% in July – a smaller drop than forecast, but nonetheless illustrating persistent supply chain disruptions.
According to Germany’s Federal Statistical Office, fewer school holidays and holiday leave in July prevented a larger decrease in production: however, a shortage of intermediate products meant enterprises struggled to complete orders.
Capping further gains for the single currency are concerns over energy supplies in Europe. Carsten Brzeski, global head of macro at ING bank, comments: ‘For Germany’s industrial backbone, small and medium-sized enterprises, higher energy prices look like a ticking time bomb.’
Russian leader Vladimir Putin announced this morning that Germany and western sanctions were to blame for the shut down of the Nord Stream 1 pipeline, going back on earlier claims that the closure was due to a leak.
Pound (GBP) Drops as BoE Concedes 22% Inflation is Plausible
The Pound is under significant pressure this morning and has erased earlier gains against several peers, as spokespeople from the Bank of England undergo questioning by the Commons Treasury Committee.
The bank’s Chief Economist, Huw Pill, conceded that a forecast from Goldman Sachs – which suggested UK inflation could reach 22% next year – was plausible. Pill did not outright endorse the forecast but his failure to discredit it dampened investor sentiment.
The new Prime Minister’s proposed support package was also a topic of discussion, as economists speculated yesterday that generous fiscal support could soften inflationary pressures and take the pressure off the BoE to hike interest rates so aggressively.
Comments from the central bank’s Governor were vague, however. Andrew Bailey said:
‘It’s not for us to comment on what fiscal policy will be and we will wait and see what it is… but I do very much welcome the fact that there will be, as I understand it, announcements this week because I think that will help to in, in a sense, frame policy and that’s important.’
Further depressing the Pound were warnings that more people are likely to fall into poverty this winter, even with the government support proposed. The Legatum Institute, a Conservative thinktank headed by Tory peer Lady Stroud, estimates that a price freeze at current levels would push 1.3m people below the poverty line.
EUR/GBP Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of further economic data for either the Pound or the Euro today leaves EUR/GBP to trade on external factors.
Sterling exchange rates are likely to fluctuate as the new government settles into their positions and fresh promises are made; meanwhile, an assessment of the current energy situation may continue to weigh upon both GBP and the single currency.
