GBP EUR Exchange Rate near Weekly Low Following Downbeat UK Growth Figures

May 25, 2017 - Written by Minesh Chaudhari

STORY LINK GBP EUR Exchange Rate near Weekly Low Following Downbeat UK Growth Figures

The Pound Euro (GBP EUR) exchange rate was subdued in trading today as the UK’s latest GDP estimate saw Q1 growth revised down.

According to the latest estimate published by the Office for National Statistics (ONS) the UK’s GDP fell from 0.7% to 0.2% in the first quarter of 2017, being revised down from the original estimate of 0.3% and making the UK one of the worse performing major economies in the first three months of the year.

The larger than expected fall in growth has been widely attributed to a sharp decline in consumer spending as households faced the twin pressures of rising inflation and weak wage growth, leading to consumer facing sectors such as retail suffering at the start of 2017.

Markets also fear that the weak pace of growth will make it even more unlikely that the Bank of England (BoE) will seek to raise interest rates in the foreseeable future, despite inflation being well above the bank’s target rate of 2%.

Royal Bank of Canada’s Sam Hill said;

‘The Bank of England’s ‘backcast’ has 0.4% q/q in for Q1, so this revised outturn of 0.2% q/q is marginal downside news for policymakers. In our view, this GDP report reinforces the existing case for not responding to above-target inflation.’

‘Indeed, we continue to see the risk that the slowdown in activity becomes more entrenched and ultimately results in monetary policy being loosened in Q1 2018.’

Analysts are confident that growth in the second quarter will be more upbeat however following a string of strong data from the UK in April and May.

Meanwhile the Euro’s position as the most traded currency with the US Dollar (USD) has helped it strengthen in trade today, as markets shy away from the ‘Greenback’ after the cautious FOMC minutes released on Wednesday.

Investors were disappointed by the tone of the minutes as it suggested that Federal Reserve policy makers were adopting an increasingly dovish outlook towards interest rates, following the recent slowdown in US economic data.

Observers now fear that additional rate hikes may be under threat this year, which caused markets to drop the US Dollar in favour of the Euro, which was also made more appealing thanks to the uptick in recent Eurozone data.

Looking ahead the GBP EUR exchange rate may trend lower over the next few sessions as a lull in economic data for the remainder of the week and thin trading volumes at the start of next week as UK markets close for the Bank holiday will likely leave Sterling with little upward momentum.

Meanwhile the ECB’s Benoit Coeuré Euro will make a speech tomorrow morning, with the Euro possibly softening if he mentions the bank’s monetary policy, although an expected rise in Italy’s Business Confidence could help to offset any potential weakness in the single currency.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.1548 and the EUR GBP exchange rate was trending around 0.8660.

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