Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed UK GDP Analysis

June 14, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed UK GDP Analysis

Pound Euro (GBP/EUR) Exchange Rate Narrows amid Mixed UK GDP Analysis

The Pound Euro (GBP/EUR) exchange rate traded within narrow boundaries during Wednesday’s session, following the latest UK GDP data.

At the time of writing, GBP/EUR traded at around €1.170, showing little deviation from Wednesday’s opening rates.

Pound (GBP) Firms amid UK GDP Expansion

The Pound (GBP) firmed during the early European session, following the publication of the latest UK GDP data for April.

On a monthly basis, the UK economy grew by 0.2% in April. This has brought support to Sterling due to signs of resilience in the economy, which prompted views that further tightening could be on the cards.

However, the wider picture appeared to be less optimistic. Economists considered that the future outlook is more cautious.

Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, commented: ‘While the UK economy is proving rather more resilient than its Euro Area counterpart, there remain grounds for continued caution. Consumer spending continues to be smothered by relentless inflation and households are under growing pressure from rising mortgage rates. Given these ongoing squeezes, a Herculean effort will still be required to avoid a recession.’

This was not quite enough of a deterrence for GBP investors however. According to ING, markets have begun to price in up to 132bps of further tightening from the Bank of England (BoE).

These increased rate hike bets likely served to add extra support to the Pound during the early European session.

Euro (EUR) Supported by Eurozone Industrial Recovery

The Euro (EUR) enjoyed some support during Wednesday’s session, following a surprise increase in Eurozone industrial production.

April saw a 1% increase in production, significantly above a -3.8% print for March. However, economists found that the data was less than upbeat, which could have capped the common currency’s gains over the session.

Bert Coljin, Senior Economist at ING, commented: ‘Industrial dynamics provide a mixed picture at best for the sector. New orders have been weak for some time now. Domestic demand for goods has been declining for a while and global activity has also disappointed. Besides that, the catch-up effects from supply chain disruptions have been fading.’

Furthermore, continued bets on additional tightening from the European Central Bank (ECB) likely contributed some buoyancy to the single currency. The ECB are widely expected to hike rates by 25bps at their meeting on Thursday.

Elsewhere, weakness in the US Dollar may have further underpinned the common currency during the European session on Wednesday.

As the Euro shares a negative correlation with the US Dollar, the weakness seen in the ‘Greenback’ may have contributed to the common currency’s ability to gain ground against some peers.

Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB Decision in Spotlight

Looking ahead for the Euro (EUR), the European Central Bank (ECB) are set to take the stage, bringing about their latest interest rate decision.

Economists and markets alike are confident in a 25bps hike, with the door remaining open for additional tightening in the future. Inflation remains high in the Eurozone, and the ECB have made repeated indications that they wish to control it.

As such, if the ECB take a hawkish stance in the accompanying forward guidance, the common currency could rally.

Elsewhere, market sentiment could shape the Euro through to the end of the week’s session. As a safer currency, a withdrawal in risk appetite could bring support to the Euro against riskier assets such as Sterling.

Meanwhile for the Pound (GBP), the data calendar is thin on the ground through to the end of the week’s session.

Because of this, the Pound may struggle for clear directional trade as investors seek opportunities from more driven currencies.

However, continually elevated bets on interest rate hikes from the Bank of England (BoE) may keep Sterling afloat, as investors continue to bank on further rate hikes after next week’s June meeting.

Elsewhere, if risk appetite continues to increase across the markets, the Pound could strengthen against the Euro as investors move away from safer assets.

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