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Slowing Eurozone GDP Data Triggers EUR/GBP Exchange Rate Decline

February 14, 2018 - Written by Toni Johnson

On Tuesday’s trading session, the Euro advanced against the Pound from an opening exchange rate of 0.8882 to close higher around 0.8897.

EUR/GBP Exchange Slips after Eurozone GDP Upset

The Euro to Pound exchange rate has fallen slightly today, following the news that Eurozone GDP growth has slowed in Q4.

Estimates for Q4 2017 have shown slowing Eurozone, Italian and German GDP growth, with the one exception being the year-on-year German projection.

Slowing GDP growth suggests that the Eurozone economy is in worse health than before, which is a concerning conclusion for Euro traders.

GBP/EUR Exchange Rate Slides after Negative Reaction to ‘Road to Brexit’ Speech

The Pound has fallen back against the Euro during today’s trading, not least because of an adverse response to a pro-Brexit speech from Foreign Secretary Boris Johnson.

Mr Johnson’s so-called ‘Road to Brexit’ speech was focused on the potential positives of the UK leaving the EU, but the general consensus was that he had been sparing with actual details.

The speech was devised to reduce growing negative sentiment towards Brexit, following voiced concerns that UK negotiators are losing track of the original aims of the initial Brexit decision.

In the summary of his lengthy discourse, Mr Johnson claimed that;

‘Brexit is not just the great liberal project of the age, but a project that over time can unite this country’.

Among the high-profile critics of Mr Johnson’s vision has been Labour MP Chuka Umunna, who said;

‘[Mr Johnson’s] plan would see Britain sever trade ties with our largest trading partner, weaken protections for workers, consumers and the environment, and jeopardise the Good Friday agreement in Northern Ireland.

The scaremongering, mistruths, lack of detail and utter disregard for the economic realities of Brexit were an alarming throwback to the [EU] Referendum campaign’.

Taking a slightly more balanced outlook has been Conservative MP Sarah Wollaston, who has remarked that;

‘Now we urgently need a serious speech that addresses the reality of the practical issues, timescales & contingency planning including Irish border.

[The] time for [a] relentless “optimism bias” is over’.

In other UK news, the Pound has also been dragged down by a negative International Monetary Fund (IMF) economic outlook.

Summing up UK economic growth so under conditions such as Brexit, IMF officials have gloomily remarked that;

‘Economic growth has moderated since the beginning of 2017, reflecting weakening domestic demand.

The sharp depreciation of Sterling following the referendum has raised consumer price inflation, squeezing household real income and consumption.

Business investment has been constrained.

In the medium term, growth is projected to remain at around 1.5% under the baseline assumption of continued progress in Brexit negotiations that lead to an understanding on a broad free trade agreement and on the transition process.

The baseline outlook is subject to a number of risks, including developments with Brexit negotiations; uncertainty about the recovery of productivity growth, which has been weak since the crisis; and the current account deficit, which reached a record high in 2016’.

EUR/GBP Exchange Rate Forecast: EUR/GBP Rate could Rally on Eurozone Trade Data

The Euro could rise sharply against the Pound on the morning of 15th February, when the Eurozone trade balance for December will be announced.

The reading is predicted to show growth from 26.3bn to 30.2bn, which would represent an expansion of the existing Eurozone trade surplus.

Such a result could boost confidence in the Euro, leading to a noticeable appreciation against its usual currency peers.

Other high-impact Eurozone data out on Thursday will be the Q4 unemployment rate reading from France, although this isn’t predicted to show any change from 9.7%.

The week’s last major UK data will be released on 16th February and cover reported retail sales in January.

Economists believe that sales are likely to slow for the year-on-year readings, which means that the Pound could depreciate on the news.

Month-on-month growth has been predicted, but this might not be enough to raise confidence among GBP traders.
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