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GBP/EUR Exchange Rate Forecast: Pound Euro Exchange Rate Volatile as UK GDP Growth Slows

July 9, 2021 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate has been trading in a volatile range since markets opened this morning as GDP figures from the UK have shown economic growth softened during May.

At the time of writing the GBP/EUR pairing are trending around the 1.1638 level as Euro investors await a speech from European Central Bank (ECB) President Lagarde later on this morning.

Pound (GBP) Struggles as UK GDP Rises Less-Than-Expected

The Pound has struggled to hold onto any meaningful gains against the Euro this morning as the latest GDP figures from the UK have shown that economic growth slowed to 0.8%, missing forecasts of a 1.5% growth.

Whilst markets had expected a bigger growth in the UK’s economy during May, as more lockdown restrictions were eased, a large slowdown in the manufacturing sector instead softened the pace of expansion.

Jonathan Gillham, chief economist at PwC commented on the GDP figures, saying:

‘There are some concerning patterns though - output fell in several manufacturing sectors, microchip shortages disrupted car production, and while consumers spent more time on the high street, overall retail sales were down. Construction numbers fell and so too did components of the financial services sector.’

‘These trends suggest continued consumer caution and that businesses, despite having adapted amazingly well to lockdown conditions in the first quarter, may struggle to fully return capacity to pre-COVID levels.’

Sterling investors also can’t seem to shake off concerns surrounding the UK’s proposed lockdown easing on the 19th July as The Independent reports that health services across the UK are already ‘buckling’.

Ted Baker, the chief inspector of hospitals at the Care Quality Commission commented on the pressure the NHS is facing:

‘The current challenges faced by NHS hospital services are very real, with a significant increase in demand and pressure impacting on both staff and patients.’

‘We are seeing record levels of attendances at emergency departments, high bed occupancy rates and growing waiting times for elective care.’

Euro (EUR) Limited on Lack of Notable Data

The Euro has been limited against many of its major rivals this morning as a lack of notable data from the Eurozone paired with a strengthening US Dollar limited the appeal of the single currency.

Whilst the Euro had been bolstered yesterday afternoon following the ECB’s announcement that inflation targets would be shifted upwards to 2% the currency had shed most of its gains by this morning.

More so, a strengthening US Dollar has also limited Euro sentiment thanks to the negative correlation between the pairing.

The Euro could find itself heading higher later this morning however if a speech from ECB President Lagarde took a more hawkish stance surrounding the Eurozone’s economic recovery.

Pound Euro Exchange Rate Outlook: Inflation Rate Figures in Focus

Heading into next week, Euro investors will look towards German inflation rate figures to be released on Tuesday which could provide much needed support to EUR exchange rates.

Whilst Wednesday will see the release of UK inflation rate data, Pound traders will focus all their attention to Prime Minister Boris Johnson’s final decision regarding lockdown easing on Monday.

If the Prime Minister makes a U-turn and delays ‘freedom day’ once more then Sterling could suffer major losses.

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