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Pounds to Euros Outlook: GBP/EUR Exchange Rate Rises despite UK Facing Weakest Economic Growth in Ten Years

February 7, 2019 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate rallied on Thursday afternoon following the Bank of England (BoE) interest rate decision, and is now trading at an inter-bank rate of €1.1432.

The BoE held interest rates steady at 0.75%, and indicated that the UK faces its weakest economic growth since 2009.

The bank’s Quarterly Inflation Report stated:

‘Growth appears to have slowed at the end of 2018 and is expected to remain subdued in the near term.’

Governor of the BoE, Mark Carney, claimed that the UK was not ready for a no-deal Brexit, although he reassured investors that the bank would promise that it would do its best to keep inflation close to the 2% target ‘whatever the weather’.

The bank also stuck by its message that if a Brexit deal is done, interest rates would rise, which buoyed the Pound against the Euro this afternoon.

Earlier: Pound (GBP) Muted as EC Rejects PM’s Brexit Proposal

This morning saw the Prime Minister head back to Brussels to meet European Commission President, Jean-Claude Juncker.

The pair’s discussion concluded with Juncker stressing that the withdrawal agreement could not be altered, which likely did little to help the Pound.

A joint statement from Downing Street and the European Commission suggested that the wording could be added to the political declaration which would reassure MPs that the backstop would remain temporary.

However, the statement also signalled that significant progress is not expected by Wednesday.

Earlier: Euro (EUR) at Two-week Low as EC Slashes Forecast Growth

This morning saw the release of December’s seasonally adjusted German Industrial Production figure which showed that production slipped by -0.4%.

This figure has now fallen for the fourth consecutive month, sparking further fears that the Eurozone’s largest economy is weakening.

The drop in industrial production was led by the shrinking construction sector, where activity slid by more than 4%.

Today also saw the Euro fall to a two-week low as the European Commission sharply cut its forecasts for Eurozone economic growth from 1.9% to 1.5% in 2019.

Pound Euro (GBP/EUR) Outlook: Will Increased German Imports and Exports Boost the Euro?

The end of this week’s session will see the release of December’s German export and import figures, with both figures forecast to see growth, which could see Euro sentiment increase.

As there is a lack of further UK economic data releases, the catalyst for the pairing is likely to be Brexit, with GBP/EUR rising if there are signs that the PM is able to prevent the UK from being ‘trapped’ in the backstop.

Looking ahead to the start of next week’s session, the Eurozone will release the German ZEW economic sentiment survey for February.

If this figure increases from the previous -15, it could see the GBP/EUR exchange rate slip.

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