Pound Euro (GBP/EUR) Exchange Rate Plummets as UK GDP Misses its Mark

April 27, 2018 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Plummets as UK GDP Misses its Mark

UK Q1 Growth at Lowest Rate in 5 Years – Pound Euro (GBP/EUR) Exchange Rate Tumbles

The Pound Euro (GBP/EUR) exchange rate tumbled on Friday, encumbered by news that the UK’s economic growth estimate for Q1 2018 was substantially below estimates.

According to the Office for National Statistics (ONS), the UK’s Q1 GDP growth rate printed at 0.1%, down from the previous period’s score of 0.4% and the forecast of the same.

On a yearly basis, economic growth also fell short by printing at 1.2%, down from the previous score of 1.4%.

This sub-par result was largely due to a -3.0% contraction in the UK’s construction sector, though the services sector also continued to post a poor performance, coming in at 0.3% with minor limitations due to the recent severe weather.

This news sent Sterling investors running to the hills, with markets anxious that Bank of England (BoE) Governor Mark Carney will now delay a rate hike beyond May due to the apparent fragility of the British economy.

ECB Rate Decision Fails to Prevent Pound Euro (GBP/EUR) Exchange Rate Fall

Markets were still digesting Thursday’s European Central Bank (ECB) rate decision on Friday, but the cautious nature of the meeting did little to prevent the Pound Euro (GBP/EUR) exchange rate from falling.

The central bank held interest rates steady on this occasion and once again reaffirmed their ultra-easy stance on monetary policy - claiming that no rate hike is expected for the foreseeable future and that the bank’s bond-buying scheme could be extended past September this year if necessary.

This outlook was largely due to the bank’s struggle to push inflation up to target levels.

ECB President Mario Draghi did assert that he still sees ‘underlying strength’ in the bloc’s economy, but this did little to reassure the markets.

Beyond this, today’s Eurozone ecostats were rather mixed, with both Spain and France seeing marked declines in their GDP results.

German unemployment did hold steady, however; a breath of fresh air after an extended run of disappointing German ecostats.

All of this data, whilst significant, did not prevent GBP/EUR from falling.

Pound Euro (GBP/EUR) Exchange Rate Forecast: Eurozone Inflation in the Spotlight

The primary drivers for the Pound Euro (GBP/EUR) exchange rate next week will be the bloc’s inflation and GDP readings, with any indication that consumer prices are still down in the dumps, liable to give Sterling room to claw back some losses.

For the UK, markets will be keeping an eye on the UK’s latest Markit purchasing managers’ index results (PMI), though given the severity of the drop in Q1 GDP and what it could mean for the May rate decision, it is possible that Sterling will take some time to recover.

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TAGS: Pound Euro Forecasts