Pound Euro (GBP/EUR) Exchange Rate Climbs as German Growth Stagnates

April 28, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Climbs as German Growth Stagnates

Pound Euro (GBP/EUR) Exchange Rate Pushed Higher as Eurozone Growth Struggles

The Pound Euro (GBP/EUR) exchange rate firmed on Friday. The pairing was buoyed by signs of a slowdown in growth in both Germany and the Eurozone.

Upbeat UK business confidence figures and Bank of England (BoE) rate hike bets also pushed GBP/EUR higher.

At time of writing the GBP/EUR exchange rate was at around €1.1344, which was up roughly 0.2% from that morning’s opening figures.

Euro (EUR) Dragged Lower by Disappointing Growth Figures

The Euro (EUR) came under pressure on Friday after surprisingly disappointing data for Germany and the Eurozone as a whole. A risk-off market mood cushioned the single currency’s losses, however.

Initially, evidence of first quarter stagnation in Germany’s economy prompted a downturn in EUR. Q1 GDP figures printed 0% versus the expected expansion of 0.2%.

Reduced private and public consumption acted as a drag on growth and prompted renewed fears of a potential recession in the trading bloc’s largest member.

Following this, cooler-than-forecast growth figures for the Eurozone added to the negative sentiment around the Euro. First quarter growth printed at 1.3% versus the 1.4% expected.

Despite signs of persistent strength in the trading bloc, economists were more downbeat about the Eurozone’s chances.

Carsten Brzeski, global head of macro at ING, said:

‘The eurozone economy carries on along the rim of stagnation. A meagre 0.1% quarter-on-quarter GDP growth in the first quarter with high divergence across member states is better than feared – but clearly no reason to cheer.’

Pound (GBP) Gains as Business Confidence Hits 11-Month High

The Pound (GBP) firmed on Friday. Sterling found support from Bank of England rate hike bets, as well as upbeat business confidence figures.

According to Lloyds Bank’s business barometer, UK business confidence rose to an 11-month high in March. The data rose by 11 points to 32%.

The evidence of easing inflation potentially capped gains for Sterling on Friday amid the prospect of weaker action from the BoE.

Conversely, market bets on a 25bps hike from the BoE at their May meeting pushed GBP higher.

GBP/EUR Exchange Rate Forecast: Will Potential 50bps ECB Hike Boost Euro?

Later on Friday, a forecast downturn in German inflation could pull the Euro lower if it prints as forecast.

EUR will see a busy data calendar over the coming week. A forecast recovery in German retail sales on Tuesday could initially bolster the single currency. March’s sales are set to rise by 0.4%.

Also on Tuesday, the latest Eurozone inflation figures could bolster EUR ahead of the European Central Bank’s interest rate decision later in the week. April’s inflation is expected to remain unchanged at 6.9% as markets bet on a rate hike from the central bank.

Eurozone unemployment data could also add to the Euro’s gains if Wednesday’s data prints as forecast. March’s unemployment rate is set to stay at the record-low of 6.6%. The data could also add to ECB rate hike bets.

The ECB’s interest rate decision on Thursday could prompt some dramatic movements in the Euro. The central bank is forecast to raise interest rates, although markets remain split on the size of the hike. A 50bps increase could see the Euro jump, with any hawkish signals having a similar effect.

Finally for the Euro, a predicted uptick in March’s Eurozone retail sales could add to EUR’s potential gains.

Sterling meanwhile will see few data releases over the coming week. The currency could see thin trading conditions on Monday amid a UK bank holiday.

On Tuesday, the final reading of April’s manufacturing PMI prompt losses in GBP if it confirms a downturn in the sector.

Additionally for the Pound, the final reading of the PMI for the UK’s dominant services sector could have the opposite effect on the currency. April’s figures are forecast to confirm a healthy expansion in services activity.

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