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Euro to Pound (EUR/GBP) Exchange Rate Edges Higher as UK Posts Weakest GDP Since Records Began

August 12, 2020 - Written by John Cameron

EUR/GBP Exchange Rate Rises as UK Economic Outlook Dims on Weak Growth Figure

The Euro to Pound (EUR/GBP) exchange rate rose by 0.5% today, with the pairing currently fluctuating around £0.90.

Sterling suffered today following the release of the flash GDP figure for the second quarter, which showed that the UK economy had plunged into the deepest recession since records began. The quarter-on-quarter figure fell from -2.2% to -20.4%.

Kieran Cleere, Director of Market Risk Solutions at Silicon Valley Bank, commented on the report:

‘The drop off in economic activity of 20.4% represents one of the deepest developed economies might see, and the deepest on record for the UK, but may be accounted for, in part, by the timing of the lockdown as compared with other economies.’

However, the month-on-month GDP report for June showed a marked improvement, with the figure rising from 1.8% to 8.7%. Consequently, not all is doom and gloom for the British economy.

Jonathan Athow, the deputy statistician for economic statistics at the ONS, explains:

‘The economy began to bounce back in June, with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.’

Euro (EUR) Rises Despite Weaker-Than-Expected Eurozone Industrial Production Data

The Euro (EUR) rose against the Pound (GBP) today despite weaker-than-expected Eurozone industrial production data for June. Although the figure rose to -12.3%, this was still not enough to buoy confidence in the bloc’s industrial sector’s recovery.

Bert Colijn, the Senior Economist for the Eurozone at ING, commented on the report:

‘The recovery can be considered mechanical as mandatory shutdowns and voluntary closures or limited production to curb the virus have been gradually lifted, causing production to automatically increase. The 9.1% increase follows a 12.3% increase in May, meaning that the pace of recovery has fallen only slightly in the second month of reopening. The improvements were widespread across production categories with non-durable consumer goods production even accelerating in June.’

Meanwhile, EUR investors have remained notably cautious following yesterday’s worse-than-expected German ZEW survey for August’s current situation gauge.

As a result, investors have remaining cautious as the Eurozone’s powerhouse economy continues to struggle from the coronavirus pandemic’s grip.

EUR/GBP Outlook: Could a Dim Eurozone Economic Outlook Hold Back the Single Currency?

Euro (EUR) investors will be looking ahead to tomorrow’s release of German’s Harmonised Index of Consumer Prices for July. Any improvement in the Eurozone’s economy would prove EUR-positive.

Tomorrow will also see the release of the French ILO Unemployment figure for the second quarter. However, if unemployment continues to rise in France, we could see the single currency suffer.

The EUR/GBP exchange rate will continue to be driven by Eurozone economic data this week, with few UK economic releases of note until next week. As a result, we could see the pairing begin to sink if the outlook for the bloc’s economy deteriorates.

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