Pound Sterling to Euro (GBP/EUR) Currency Pair Holds 0.6% Decline on Cut UK Growth Forecasts

Modified: Monday, 8 June 2015 16:37 BST - Written by John Cameron

STORY LINK Pound Sterling to Euro (GBP/EUR) Currency Pair Holds 0.6% Decline on Cut UK Growth Forecasts

Over the course of the European session the Pound Sterling to Euro exchange rate lost more than 0.6%. The GBP/EUR pairing fell to a low of 1.3631 as investors digested the news that the Confederation of British Industry (CBI) expects the UK to record a far slower pace of annual growth in 2015 than previously forecast. Earlier in the year the CBI projected expansion of 2.7% in 2015. Now the institution expects the UK economy to grow by 2.4% over the course of this year. The rate of expected expansion in 2016 was also slashed from 2.6% to 2.5% as a result of EU referendum concerns, the repercussions of the prolonged Greek bailout negotiations and an easing in services output.

As stated by Bloomberg; ‘The missing ingredient in an otherwise robust domestic economy is the elusive pickup in productivity growth required for a durable boost in household spending, currently supported by low oil prices. [CBI] predicts inflation will stay below the 1% mark this year before accelerating to an average of 1.6% in 2016 as the impact of lower fuel and food prices unwinds.’

The GBP/EUR exchange rate was also trending in a softer position as a result of upbeat German data. Industrial production in the Eurozone’s largest economy exceeded forecasts, as did the level of German exports. The 1.9% month-on-month increase in exports smashed forecasts for a -0.4% decline and led to Germany posting a stronger-than-anticipated trade surplus in April.

The Eurozone’s Sentix Investor Confidence index did fall by more-than-projected (dropping from 19.6 to 17.1 instead of easing to 18.7) but the Euro managed to continue holding its own against the Pound. On Tuesday the main causes of GBP/EUR exchange rate movement are likely to be the UK’s latest trade balance data and Eurozone first quarter growth figures. If it is confirmed that the currency bloc expanded at a rate of 0.4% in the first quarter, quarter-on-quarter, or if growth is positively revised, the Euro could climb. Meanwhile, a widening in the UK trade deficit would also reduce demand for the Pound. Of course, the ongoing talks between Greece and its creditors will continue to have an impact on the direction taken by the GBP/EUR currency pair. Any negative news from the Hellenic nation or its creditors would push the Euro lower.

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