Pound Euro Exchange Rate News: GBP/EUR Fluctuated as UK Narrowly Avoids Recession

March 31, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Fluctuated as UK Narrowly Avoids Recession

Pound (GBP) Supported by Surprise GDP Growth

The Pound (GBP) experienced mixed fortunes on Friday morning in the wake of GDP growth surprising to the upside. Against expectations of flatlining GDP growth for the last three months of 2022, the final reading came in at a 0.1% increase.

Avoiding a second quarter of contracting economic activity, the UK economy avoided a technical recession. The Office for National Statistics (ONS) revealed the final reading for GDP growth in the UK for Q4 2022 and improved investors’ spirits.
Darren Morgan, ONS Director of Economic Statistics, commented on the latest data:

‘The economy performed a little more strongly in the latter half of the last year than previously estimated, with later data showing telecommunications, construction and manufacturing all faring better than initially thought in the latest quarter.’

However, despite the upbeat data, and narrowly avoiding a recession, the economic pressures remain. Compared to only a year earlier, the economy is still only 0.6% bigger, highlighting the lingering inflationary pressures. Martin Beck, Chief Economic Advisor to the EY ITEM Club, commented:

‘The revelation from Q4 2022’s national accounts that the economy grew 0.1% quarter-on-quarter, rather than flatlining as in the preliminary estimate, therefore doesn’t carry much significance.

‘That said, alongside Q3’s contraction in GDP being revised smaller, it represents the latest in a run of upside surprises and suggests the economy has displayed a welcome degree of resilience, despite pressure from high inflation and expensive energy.’

Euro (EUR) Undermined by Easing Eurozone Inflation

Meanwhile, the Euro (EUR) found modest strength despite inflation tumbling further than expected as it eased to 6.9%. Against expectations of a modest cooling to 7.1%, inflation in the Euro area cooled, tempering rate hike bets from the European Central Bank (ECB).

However, lending some modest support to the Euro is the underlying core inflation data. In line with comments from ECB policymaker Isabel Schnabel, who warned that inflation could remain ‘sticky’, with price pressures continuing to rise. Core inflation crept higher in from 5.6% to 5.7%, suggesting inflationary pressures lingering.

With this in mind, the ECB could be given further breathing room to continue its tightening cycle, which could be providing some support to the Euro.

GBP/EUR Exchange Rate Forecast: ECB Speech to Buoy the Euro?

Looking ahead, the Pound Euro exchange rate could see further movement with a speech from ECB President Christine Lagarde. Likely to discuss the latest inflation reading, any hawkish comments from Lagarde could see the Euro climb.

Meanwhile, the Pound will see out the rest of the week averse to market moods. A lack of economic data will leave Sterling exposed to domestic pressures and risk sentiment.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts