Pound Euro (GBP/EUR) Exchange Rate Down as UK GDP and Business Investment Readings Disappoint

February 22, 2018 - Written by Minesh Chaudhari

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Down as UK GDP and Business Investment Readings Disappoint

UK Growth Revised Down – Pound Euro (GBP/EUR) Exchange Rate Slides

The Pound Euro (GBP/EUR) exchange rate fell on Thursday, limited by news that the British economy has grown at a steadier rate than anticipated in recent months.

According to readings from the Office for National Statistics the UK’s GDP growth slipped to 0.4% in the fourth quarter of 2017, revised down from the previous estimate of 0.5%.

The annual growth reading was also lowered along these lines from 1.8% to 1.7%.

This drop was largely driven by poor business investment during this period, with companies hesitant to invest too heavily into the UK until a better degree of clarity is known regarding the UK’s post-Brexit relationship with the EU.

Beyond this, the result also pushes the UK to the bottom of the G7 growth tables – making it the slowest growing major economic in the world for 2017 but also dousing market anticipation for a rate hike from the Bank of England (BoE) in May.

Samuel Tombs from Pantheon Economics reflected this attitude, stating:

‘Downward revision to Q4 #GDP puts the UK back at the bottom of the G7 growth leader board for 2017. This is not an economic that obviously needs to be cooled with higher interest rates’.

Euro (EUR) Exchange Rates Unperturbed by Cooling German Business Sentiment

Euro (EUR) exchange rates proved resilient on Thursday, rising against the Pound despite cooling sentiment amongst German businesses.

The Institute for Economic Research’s (IFO) business climate gauge fell to 115.4 in February, down from the previous reading of 117.6 and the forecast of 117.

This surprisingly illustrated that German business euphoria has cooled, with companies overall less satisfied with their current situation because of the effective lack of German governance and the possibility that the United States could move towards tougher trade dealings with the bloc.

IFO Economist Klaus Wohlrabe stressed, however, that this is likely not a sign of a fundamental shift in the German economy.

Wohlrabe stated:

‘I would not yet speak of a change in the underlying trend, the German economy is still doing very well, but some of the steam has been let off’.

He did, however, stress that the coalition deal between the Conservatives (CDU) and the Social Democrats (SPD) caused even more anxiety amongst businesses, with many firms concerned that Merkel might concede too much territory to the SPD in exchange for ongoing leadership.

GBP/EUR Exchange Rate Forecast: Could Sterling Find Support on the Bloc’s Inflation Readings?

The Pound Euro (GBP/EUR) exchange rate could find support tomorrow if the Eurozone’s consumer price index (CPI) readings prove poor.

Markets currently expect the year-on-year reading to decelerate from 1.4% to 1.3% in January, with the month-on-month reading expected to massively contract from 0.4% to -0.9%.

Whilst analysts do not currently expect tighter monetary policy measures from the European Central Bank (ECB) anytime soon, such a severe drop could have overarching negative connotations for the economic performance of the bloc as we move further into 2018.

In respect to Sterling, Friday will not feature much in the form of notable British ecostats, though the ongoing process (or a lack thereof) of Brexit negotiations will continue to be a driving influence.

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TAGS: Pound Euro Forecasts