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Pound Euro (GBP/EUR) Exchange Rate Rangebound Despite Strong UK GDP Data

August 12, 2021 - Written by John Cameron

GBP/EUR Exchange Rate Steady, UK GDP Receives Boost from Easing of Lockdown Measures

The Pound Euro (GBP/EUR) exchange rate held steady today following the release of the flash UK GDP data for the second quarter, which confirmed forecasts and rose by 4.8%. The pairing is currently trading around €1.17.

Sterling has benefited from the latest growth data, which reveals that the economy had grown for the fifth month in a row thanks to a surge of diners to cafes and bars. Lockdown restrictions were eased on July 19, allowing the hospitality sector to recover.

Tom Pugh, UK economist at audit, tax and consulting firm RSM, explains:

‘Consumers rushed back to newly reopened shops, pubs and restaurants in Q2, driving consumer spending higher by 7.3 per cent q/q and the Government’s continued support for the economy meant that government spending rose by 6.1 per cent [quarter-on-quarter].’

‘Businesses may have been deterred from investing in Q2 by the very uncertain outlook, but lacklustre business investment is a key indicator of how much long-term economic damage there will be from the pandemic, so we will be watching this closely for any signs of permanently lower investment.’

Chancellor Rishi Sunak said that the economy is now ‘on the mend’ and is ‘showing strong signs of recovery’ because of the vaccine programme.

However, fears of more job losses has prevented the GBP/EUR exchange rate from rising today, as two million people still remain on furlough.

Could concerns over UK joblessness and rising Covid-19 infections limit the Pound throughout the rest of this week’s session?

Euro (EUR) Exchange Rate Steady as Eurozone Industrial Production Falls in June

The Euro (EUR) failed to rise against the Pound (GBP) today following the release of June’s Eurozone industrial production figure, which fell below forecasts to -0.3%.

Bert Colijn, the senior economist for the Eurozone at ING, commented on the data:

‘Industrial production fell by 0.3% in June. Supply chain hiccups due to input shortages continue to plague industrial production. The car sector continues to bear the brunt of the problem with semiconductor shortages resulting in a sharp decline in production over recent months. Germany faces the largest issues, with production again declining by 1% while other large eurozone economies saw production increase. France and Spain saw modest growth of 0.4% and 0.1%, respectively, but the Netherlands and Italy saw a particular strong ending to the second quarter, with 3.3% and 1% growth in industrial output.’

Yesterday also saw the release of the latest German CPI data, which hit a 28-year high of 3.8% last month.

The rise in German inflation was because of a temporary cut in VAT in 2020. As a result, this failed to translate into any lasting gains for the EUR/GBP exchange rate, leaving it steady today.

GBP/EUR Exchange Rate Forecast: UK and European Covid-19 Data in Focus

There are no UK or Eurozone economic data releases due out tomorrow. Instead, both Pound and Euro investors will monitor their respective nation’s Covid-19 developments.

Could rising concerns over the Delta variant outbreak throughout Europe limit the EUR/GBP exchange rate?

If UK covid infections show any signs of falling before the weekend, however, then we could see Sterling head higher.

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