Pound to Euro Forecast: Further Sterling Losses Ahead say SocGen Techs

November 11, 2023 - Written by John Cameron

STORY LINK Pound to Euro Forecast: Further Sterling Losses Ahead say SocGen Techs

UK GDP Data Fails to Impress Pound Sterling, GBP/EUR Exchange Rate Slides to Near 6-Month Lows

Although there was slight relief that the UK managed to avoid a negative GDP figure for the third quarter, the data pointed to persistent stagnation and the Pound Sterling (GBP) failed to draw any support.

Overall risk appetite has also dipped following hawkish comments from Federal Reserve Chair Powell which hampered the British Pound (GBP) in global markets.

Confidence in the Euro-Zone is also notably fragile, but the Pound-to-Euro (GBP/EUR) exchange rate dipped to 1.1440 and close to 6-month lows.

The ONS reported that GDP was unchanged for the third quarter compared with consensus forecasts of a 0.1% decline and followed a second-quarter increase of 0.2%.

According to Darren Morgan, head of economic statistics at the ONS, while the latest data showed a "very flat picture" overall, there were some signs of improvement.

He added; "For example, more than half of businesses were not considering raising their prices in November 2023 - that's the highest proportion of businesses to tell us this since we first introduced that question in April 2022."

Lower inflation pressures would be welcome news for the Bank of England.

According to James Sproule, chief UK Economist at Handelsbanken; “Overall our view is that GDP is flat and that the inevitable minor variations we are seeing result in much talk of recession, but the broader picture is one of stagnation, a picture we see as remaining relevant through 2024.”

Lindsay James, investment strategist at Quilter Investors, noted; “While somehow avoiding a recession this year, today’s no growth reading means the UK economy is flatlining with only 0.2% economic growth in the last six months.”

She added; “Unfortunately, for many the economic pain has only been delayed. As the Bank of England stated earlier this month that more than half of the impact of higher interest rates on the level of GDP is still to come through, the U.K. economy faces growing headwinds as we approach 2024.”

MUFG notes underlying weakness; “Consumer spending, business investment and government spending all fell with only net trade adding to growth. Given the global demand backdrop, that’s not an area of economy the UK can be dependent on.

According to ING the data was mixed and there were distortions from adverse weather conditions. It added; “In short, we think the most likely path for the economy is stagnation or very modest growth next year, though a recession can’t be ruled out.”

As far as interest rates are concerned, it added; “These latest GDP figures are of limited consequence for the Bank of England, and the committee’s focus will be more centred on next week’s services inflation and wage growth figures. Both are still too high for the Bank’s liking, but barring any huge upside surprises in both sets of figures, we think the next move for Bank Rate will be down with cuts beginning next summer.”

According to Lloyds Bank: “The outcome nevertheless reinforces expectations that the next UK policy interest rate move is more likely to be down rather than up.”

Westpac expects that the main focus will be on growth, especially with expectations that UK and Euro-Zone interest rates have peaked.

It adds; “Markets appear to have been focusing on growth differentials as central bank tightening has been turning and losing its role as key drivers of markets.”

Euro-Zone data has been sparse this week, but the latest GDP data recorded a 0.1% decline for the third quarter.

There will, therefore, be major concerns surrounding the outlook for both areas, limiting potential currency moves.

On technical grounds, Socgen sees scope for further Pound losses against the Euro; “EUR/GBP recently broke out above a multi-month trend line. It has gradually established itself above both 50-DMA and 200-DMA denoting regain of upward momentum.”

It added; “Defence of recent pivot low near 0.8650 could mean persistence in up move. Next potential hurdles are located at 0.8785 and projections at 0.8830/0.8875.” (1.12650 - 1.1325 for GBP/EUR).

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TAGS: Currency Predictions Pound Euro Forecasts