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Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Upbeat UK Spring Budget Statement

March 13, 2018 - Written by Ben Hughes

UK Growth Forecasts Upgraded, Pound (GBP) Exchange Rates Supported

The Pound Euro (GBP/EUR) exchange rate fluctuated on Tuesday, rising initially as markets responded to an upbeat UK Spring Budget Statement from UK Chancellor Philip Hammond, but coming under pressure later into the day as the Euro benefitted from a brighter outlook for the bloc from the OECD.

Mr Hammond confirmed that the Office for Budget Responsibility (OBR) has upgraded their forecasts for British GDP growth to read at 1.5% in 2018, up from last November’s rather pessimistic forecast of 1.4%.

Growth forecasts were unchanged at 1.3% for 2019 and 2020, however with a pickup of 1.4% in 2021 and 1.5% in 2022.

Beyond this, the Chancellor signalled a further easing of austerity, with Mr Hammond describing himself as ‘positively Tigger-like’ as he claimed that the country had reached a turning point, with debt expected to start falling next year.

This was quite a contrast to his previous ‘Eeyorish’ reputation, and his new-found optimism for the future of the UK’s economy gave the Pound a notable boost.

OECD Upgrades Eurozone Growth Outlook – Euro (EUR) Exchange Rates Bolstered

The Eurozone received an upgraded growth outlook of their own, however, with the OECD’s latest forecasts providing support for the Euro.

The OECD predicted 2.3% economic growth in the bloc in 2018, and 2.1% in 2019, an outlook that was largely driven by stronger global economic expansion and growing investment, both factors that could drive trade and employment higher.

In slightly worse news, however, European Central Bank (ECB) Policymaker Benoit Coeure’s comments yesterday dismissing the possibility of an interest rate rise from the central bank continued to weigh on the single currency – not the most original of perspectives but still one that further cemented the ECB as a dovish entity for the foreseeable future.

Pound Euro (GBP/EUR) Exchange Rate Forecast: Trump Tariffs in the Spotlight

Lacking much in the form of pertinent data releases this week the market focus for the Pound Euro (GBP/EUR) exchange rate will likely move to US President Donald Trump’s tariff measures, with investors eager to see if China and the EU will retaliate.

Many analysts have begun to posit that these two nations will not take a tit-for-tat response to the trade barriers, however, as China and the EU both have sizable trade surpluses with the US, which effectively positions them as having a great deal more to lose in the event of a trade war.

This confidence is repeatedly reflected by the actions and words of the US President, who signed the tariffs into action last Friday (due to begin on the 23rd of March).

Both the UK and the EU could be hurt by these tariffs, but given the UK’s extensive military and intelligence history with the US (much akin to Australia’s – another nation provided exemption), there is a chance that Britain might be able to secure exemption.

This would largely depend on the nature of the 2-year transition period that is agreed by the UK, however.
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