Euro Pound Sterling (EUR GBP) Crashes on Robust GDP Estimate

Modified: Friday, 8 September 2017 16:35 BST - Written by Frank Davies

STORY LINK Euro Pound Sterling (EUR GBP) Crashes on Robust GDP Estimate

The Euro Pound exchange rate has tumbled today in the wake of a run of positive UK data releases and an optimistic UK GDP estimate from NIESR.

The National Institute of Economic and Social Research (NIESR) released its latest monthly GDP estimate today, which listed growth of 0.4% in the three months to August.

This is notably better than the 0.2% gain demonstrated in the July quarter, and though it still remains below potential, it paints a slightly more optimistic picture for the UK’s economy and could mean an increased likelihood for a Q1 2018 rate hike.

This news comes on the back of robust service and industrial sector output and, if sustained, could merit the withdrawal of some emergency stimulus that was applied after the EU referendum last year.

The market response to this news was notable, with EUR GBP tumbling as the Pound finds itself surging against the majors.

UK Manufacturing and Industrial Production Data Proves Positive – GBP Bolstered

Earlier today the UK’s manufacturing and industrial production figures were released, with both proving positive.

The Office for National Statistics reported that Industrial production in the UK demonstrated growth of 0.2% in July (consistent with expectations), with year-on-year growth of 0.4%.


Manufacturing production, however, accelerated to a greater degree, beating last month’s flat reading and the forecast of 0.3% by printing at 0.5%. The year-on-year figure similarly printed at 1.9%, above the 1.7% that was expected and the previous period’s 0.6%.

This data proved effective in swaying the EUR GBP exchange rate into Sterling’s favour.

EUR Dominance Broken as German Trade Surplus Narrows

Whilst the positive UK data prints and GDP estimate proved the more significant movers in this pairing, Germany’s trade surplus shrinking only helped cement the Euro’s fall.

The Federal Statistics Office revealed today that Germany’s trade surplus contracted from $21.2B in June to $19.5B in July, a much more significant contraction than the $21.1B print that was forecast.

Exports themselves increased by a seasonally adjusted 0.2% in July, far below Germany’s imports, which jumped up significantly by 2.2%.

The Euro initially remained resilient to this news but in the wake of the UK’s GDP estimate the single currency could no longer contend.

EUR GBP Forecast: UK, German Inflation and BoE Rate Decision

Next week will feature three significant events relating to EUR GBP; the release of the UK’s inflation figures, Germany’s inflation figures and the September Bank of England (BoE) rate decision.

Year-on-year inflation in the UK is expected to drop from 2.6% in the year to July 2017 to 2.55% in the year to August. This is still notably higher than the Bank of England’s 2% target and goes against previous statements from the central bank that inflation would peak towards 3% in October.

Despite inflation remaining so high, the BoE is not expected to raise interest rates at next Thursday’s meeting, with most economists predicting that the Monetary Policy Committee (MPC) will keep them on hold at 0.25%.

Howard Archer, Chief Economic Advisor at the ITEM Club supported this assessment:

‘It looks a nailed-on certainty that the Bank of England will keep interest rates at 0.25% on Thursday after the September Monetary Policy Committee meeting… with growth likely to remain lacklustre over the rest of 2017 and with inflation likely to fall back appreciably in 2018 after peaking around 3% in the latter months of 2017’.

If the Bank does indeed prove dovish then the Euro may claw back some of its losses, especially as the Pound remains vulnerable to the storm of ongoing uncertainties regarding Brexit negotiations, though this may be dependent on Germany’s inflation figures not disappointing.

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TAGS: Currency Predictions Euro Pound Forecasts