Home » Pound Euro exchange rate falters as UK GDP stagnates

Pound Euro exchange rate falters as UK GDP stagnates

The Pound Euro exchange rate ticked lower this week, with the pairing being pressured by weak UK growth figures and EUR/USD trading dynamics.

Pound dented by underwhelming UK GDP release

The Pound Euro exchange rate traded in a narrow range through the start of this week, amid thin trading conditions due to the extended Easter weekend.

Sterling then continued to trade sideways on Tuesday after the International Monetary Fund (IMF)’s latest forecast upgraded the UK’s growth outlook, but also warned the UK economy is still likely to shrink in 2023.

At the same time, EUR exchange rates were muted as the Eurozone’s latest retail sales figures reported a sharp contraction in February.

The Euro then began to catch bids in mid-week trade as the single currency’s negative correlation with the US Dollar saw it firm as the latter slumped in the wake of underwhelming US inflation figures.

The second half of the week saw the GBP/EUR exchange rate punch lower in the wake of the UK’s latest GDP release. February’s month-on-month figures reported a stalling of UK economic growth and pulled the Pound lower.

At the same time, the Euro’s relationship with the US Dollar, coupled with hawkish comments from a European Central Bank (ECB) policymaker helped extend the single currency’s bullish momentum through the latter half of the week.

Strong UK inflation and wage growth to boost GBP?

Looking ahead to next week the highlight of the session is likely to be the publication of the UK’s latest jobs report and inflation figures.

The two releases will be closely watched by GBP investors as they seek to gauge the likelihood of the Bank of England (BoE) raising interest rates next month.

If wage growth remains elevated and double-digit inflation persists, then this will likely increase the odds of a May rate hike and bolster Sterling sentiment.

Also of note to GBP investors will be the UK’s latest PMI figures. Could another slowdown in UK private sector limit the Pound’s upside potential?

The publication of the Eurozone’s own PMI figures will be the primary focus for EUR investors next week. If April’s preliminary figures report an improvement in private sector growth the Euro is likely to firm.

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