Pound to Euro Rate Today: Eurozone Avoids Recession

January 31, 2024 - Written by John Cameron

STORY LINK Pound to Euro Rate Today: Eurozone Avoids Recession

The Pound to Euro exchange rate hit 5-month highs just below 1.1750 on Monday before a retreat to 1.1710 on Tuesday.

Slightly disappointing UK credit data and better-than-expected Euro-Zone GDP data triggered a Pound correction.

According to flash data, Euro-Zone GDP was unchanged in the fourth quarter of 2024 compared with expectations of a 0.1% decline.

The third-quarter figure was confirmed at a 0.1% decline with the Euro area just avoiding a technical recession, although there was barely any growth for the year.

As far as the UK is concerned, the British Retail Consortium (BRC) reported that shop prices increased 2.9% in the year to January from 4.3% previously and the lowest reading since May 2022.

BRC chief executive Helen Dickinson commented; “Non-food goods drove the fall, as many retailers offered heavily discounted goods in their January sales to entice consumer spend amidst weak demand.”

Non-food prices increased 1.3% over the year, the weakest reading since February 2022. Food prices still increased 6.1% over the year.

Mike Watkins, head of retailer and business insight at NielsenIQ noted some price declines in supermarket prices, but added; "However, consumer demand remains fragile as most households are yet to feel better off after nearly 2 years of inflation.”

The latest UK data recorded an increase in mortgage approvals to 50,460 for December from a downwardly-revised 49,300 previously, but this was below consensus forecasts of 52,500.

Overall consumer lending was also weaker than expected with an increase of £0.4bn from £2.1bn the previous month as consumers continued to repay mortgages.

The data will dampen optimism to some extent.

Barclays focussed on relative growth indicators and, despite weaker than expected lending data, expects UK out-performance will support the Pound; "We expect such demand-side outperformance to continue supporting the pound, particularly versus the euro and Swiss franc.”

According to Bank of America (BoA); “So far, so good: our base case scenario for the global economy implies that the favourable cyclical tailwinds should remain supportive for UK assets in a lower vol environment.”

BNP Paribas considers that the market positioning data is flashing a warning sign with the number of non-commercial long Sterling positions hitting a 4-month high close to $2.5bn in the latest data.

It added; “we would be cautious about chasing the currency higher, given the build-up of long positioning".

BoA also adds a caveat; “the dual deficit and weak net international investment position will maintain the risk premium in UK fixed income against the backdrop of structurally high inflation.”

The Bank of England (BoE) will be a key focus this week.

MUFG notes that headline inflation could be close to 2% by the middle of 2024.

Nevertheless, it adds; “we still expect the BoE to sound relatively cautious by not giving a clear indication over the timing of the first rate cut at the current juncture while core and services inflation remain uncomfortably high.”

Markets and the BoE will also be expecting tax cuts in the March 6th budget which will cause some reluctance to sanction interest rate cuts.

The bank expects a firm Pound tone; “So long as the BoE does not provide a strong signal in favour of a May cut, we see room for EUR/GBP to fall further below the 0.8500-level. (GBP/EUR above 1.1765).

French GDP was unchanged in the fourth quarter of 2023, in line with consensus forecasts while the third-quarter figure was revised to 0.0% from a 0.1% decline and a technical recession was avoided, but 2023 growth was held to 0.9% from 2.5% in 2022.

Spanish data was more constructive with 0.6% growth for the fourth quarter and Italian data also beat expectations.

Germany confirmed a 0.3% contraction for the quarter, although it avoided a technical recession due to revisions. According to ING; “The best way to describe the state of the German economy is probably that it is in a shallow recession. In fact, the economy remains stuck in the twilight zone between recession and stagnation.”

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TAGS: Pound Euro Forecasts