Pound Euro Exchange Rate News: GBP/EUR Stumbles Following Weak GDP Reading

April 11, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Stumbles Following Weak GDP Reading

GBP/EUR Slips in Response to Lower-Than-Expected UK GDP Reading

The Pound Euro (GBP/EUR) exchange rate is trading lower today after the UK economy expanded at a slower rate than forecast during February.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1945, roughly down 0.3% from today’s opening levels.

Pound (GBP) Drops Following Disappointing UK GDP Reading

The Pound (GBP) is falling against the Euro (EUR) this morning in response to a weaker-than-forecast UK GDP reading.

In February, the UK economy expanded by 0.1%; this is significantly slower than January’s 0.8% growth and below expectations of a 0.3% expansion.

The GDP is now 1.5% above February 2020 levels: the main contributor was the service sector – made up of travel agency, tour operators and reservation services – increasing by 0.2%.

This came after the UK government’s ‘Plan B’ coronavirus restrictions were lifted at the end of January.

James Knightley, ING analyst, said:

‘Firstly – and not that surprisingly – consumer services recorded a strong bounce in what was really the first month of ‘business as usual’ again after Omicron.

‘The bulk of Covid-19 restrictions (including work from home guidelines) had stopped, and card spending at social venues returned to comparable pre-virus levels.

‘Both hospitality and arts/entertainment/recreation bounced by almost 9% compared to January – led by tourism-facing industries, according to the ONS.’

However, construction dipped by 0.1% as three storms throughout February caused delays across the sector.

The Russia-Ukraine war also added to supply chain bottlenecks and hindered car producers’ ability to source components, causing car manufacturing to drag on GDP.

According to Alpesh Paleja, CBI Lead Economist, the ‘growth impetus remain[ed] underwhelming’ as the Ukraine crisis ‘exacerbat[ed] cost pressures and supply chain disruption.’

Meanwhile, the UK’s cost-of-living crisis and the Russia-Ukraine war also continues to hamper demand for Sterling today.

Euro (EUR) Rises Following First Round of French Election

The Euro (EUR) is climbing against the Pound (GBP) this morning in response to French election results.

French President Emmanuel Macron has gained on his opponents during the first round of elections.

97% of results have been counted: Macron has thus far received 27.6% of the vote. Opponents, Marine Le Pen, and Jean-Luc Mélenchon have received 23.41% and 21.95%, respectively.

Should Le Pen gain traction, her far-Right, anti-European Union’s stance is likely to cause pressure on EUR.

Despite a solid showing in the first round, Macron has advised his supporters to ‘make no mistake’ as ‘nothing is decided.’

Meanwhile, the Ukraine crisis is expected to continue to escalate in the coming days, with a full-scale Russian invasion predicted in the East.

Volodymyr Zelenskiy warned ‘Russian troops will move to even larger operations in the east of our state. They can use even more missiles against us, even more air bombs.’

However, Zelenskiy stated Ukraine is ‘preparing for their actions’ and ‘will respond’.

How Ukraine intends to respond and the ramifications of which is currently unknown.

In turn, it is driving a risk-off sentiment and placing pressure on the single currency, limiting EUR’s gains today.

GBP/EUR Exchange Rate Forecast: Will the Russia-Ukraine War Escalate Further?

Should Russia’s invasion of Ukraine escalate in the East as many are predicting, it is likely to hamper the appeal of both the Pound and the Euro.

If peace talks remain at an impasse, it is likely to weigh on GBP/EUR.

The release of the UK’s latest jobs report will be a key focus for GBP investors tomorrow.

While unemployment is expected to remain unchanged, a bump in wage growth could cushion concerns over the UK’s rising cost of living and lend some support to the Pound.

On the other hand, the Euro may be hindered by Germany’s latest ZEW economic sentiment index: the index is expecting a decline in sentiment during April.

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TAGS: Pound Euro Forecasts