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GBP/EUR Outlook: Pound Euro Exchange Rate Edges Higher as UK Business Confidence Impresses

March 8, 2021 - Written by John Cameron

The Pound to Euro (GBP/EUR) exchange rate edged higher this morning as business confidence rose across the UK in data released from February.

At the time of writing GBP/EUR are currently trading at around 1.1641, the exchange rate is further gaining following comments from Bank of England (BoE) Governor Andrew Bailey.

Pound (GBP) Exchange Rate Supported by 12-Month High Business Confidence from the UK

The Pound was supported this morning from renewed optimism in business confidence in the UK’s services sector.

Data released from accountancy and business advisory firm BDO LLP showed that the BDO’s Service Optimism report jumped to 94.13 in February.

The highest reading in a year suggest that service optimism was rising before Boris Johnson’s government set out the roadmap out of lockdown for the UK.

Kaley Crossthwaite, Partner at BDO LLP said:

‘The speed of the vaccine rollout across the UK has given businesses a much-needed shot of relief.’

‘With business lifelines extended in the shape of the prolonged furlough scheme, and an extra dose of support provided to hospitality via extensions in business rates relief and the VAT cut to 5%, there is reason to believe this optimism can be sustained as we gradually emerge from the depths of lockdown.’

Sterling was also supported by comments from BoE Governor Andrew Bailey, who was cautiously optimistic surrounding the UK’s economic recovery.

Euro (EUR) Exchange Rate Struggles as German Industrial Production Misses Forecasts

The Euro found itself struggling this morning as Industrial Production data from the Eurozone’s largest economy, Germany, missed forecasts the first negative reading in 8 months.

Output in the industrial sector, including construction and energy, fell by 2.5% on the month, according to the Federal Statistics Office), missing forecasts of a 0.3% increase.

Chief Europe economist at Capital Economics Andrew Kenningham commented on the data, saying:

‘The poor January number is another reason to think that aggregate GDP will contract, perhaps quite sharply, in Q1.’

‘With Covid-19 restrictions having been extended until the end of March, and potentially running for longer, overall economic activity will remain subdued for some time. There should be a sustained recovery from the second quarter, however, provided that the vaccination programme gathers pace.’

The Euro is also struggling against its negative correlation with the US Dollar which has seen a strengthening following rising Treasury Yields.

GBP/EUR Exchange Rate Forecast: Eurozone GDP Data in Focus

For Euro investors, key GDP data from the Eurozone released tomorrow could push the single currency down further, the release of the third estimate for Q4 GDP is expected to show a -0.6% contraction, confirming the Eurozone suffered a double-dip recession.

Furthermore, employment data from the bloc could also spell more trouble for EUR as employment change from across the bloc is expected to be down 2% year-on-year, slightly up on the previous quarter.

In absence of any notable data from the UK until the second half of the week, GBP investors will instead be focused on any coronavirus developments from across the UK, with over 20 million people in the UK receiving their first dose of the vaccine.

As the first stage of the roadmap out of lockdown begins, traders will keep an eye on whether schools returning is a success.

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