Euro Pound (EUR/GBP) Exchange Rate Drops as UK Economy Expands in Q1
The Euro Pound (EUR/GBP) exchange rate is falling today. Positive first quarter growth in the UK could be weighing on EUR/GBP.
On the other hand, hawkish comments from European Central Bank (ECB) officials may be cushioning the pair’s losses.
At time of writing the EUR/GBP exchange rate is at around £0.8699, which is down roughly 0.3% from this morning’s opening figures.
Pound (GBP) Firms despite Surprise March GDP Contraction
The Pound is climbing today after mixed GDP data this morning. A more upbeat market mood may be lending additional support to Sterling.
GBP initially found support after first quarter GDP growth data indicated that the UK economy expanded by 0.1%. The figures also gave further credence to forecasts that the UK will avoid a technical recession in 2023.
Ben Jones, CBI lead economist, said:
‘Underlying momentum appears to be firming, with our surveys showing growth expectations for the quarter ahead creeping back into positive territory for the first time in a year.’
On the other hand, a surprise GDP contraction in March may be preventing the Pound from fully capitalising on this optimism. The fall was largely motivated by poor performance in the UK’s retail sector amid the country’s cost-of-living crisis.
The contraction also means that the UK is the weakest performing G7 country following the Covid-19 pandemic. These downbeat forecasts may also be capping Sterling’s gains today.
Euro (EUR) Muted amid Hawkish ECB Signals, Slips Against Pound
The Euro (EUR) is seeing limited movements today amid thin trading conditions. An improvement in risk appetite may be weighing on the single currency and prompting losses against the Pound (GBP).
Persistently hawkish signals from the ECB may be underpinning the Euro today, though. The past week has seen multiple rate-setters speak in favour of additional policy tightening from the central bank.
Speaking at the G7 meeting in Japan, ECB policymaker Joachim Nagel said:
‘Current data did not indicate that the ECB should change its thinking on the need for further rate hikes. We need to be sure that the latest inflation wave ends.’
EUR/GBP Exchange Rate Forecast: Will Eurozone Q1 Growth Bolster EUR?
Production data for the Eurozone’s industrial sector could prompt a downturn in the Euro on Monday if it prints as forecast. March’s output is expected to fall by 1.8% after two consecutive months of growth.
Tuesday’s data release could have a mixed effect on the single currency. On the one hand, the latest reading of Germany’s ZEW economic sentiment could pull EUR lower if it falls for a fourth consecutive month.
On the other hand, Q1 growth figures for the Eurozone are expected to indicate 0.1% growth in the trading bloc. EUR could be buoyed by the data and forecasts that the bloc may avoid a recession.
The final reading of April’s Eurozone inflation could also bolster EUR on Wednesday. Inflation is expected to tick higher to 7% which could prompt renewed ECB rate hike bets.
For the Pound, jobs data on Tuesday could pull Sterling lower and see a pullback in BoE rate hike bets. March’s unemployment is expected to remain at a high of 3.8%, whilst wage growth in March is set to slow to 4.9%. Employment data was cited by the BoE as a key factor in their future rate hike decisions.
A speech from Bank of England Governor Andrew Bailey on Wednesday could deepen potential losses for GBP. Markets will be watching Bailey’s speech for additional signals that inflation is cooler faster than expected.
