Pound Euro (GBP/EUR) Exchange Rate Extends Recovery amid UK Economy Hopes
The Pound Euro (GBP/EUR) exchange rate strengthened today, with Sterling extending its recovery after last week’s selloff following the European and British central bank interest rate decisions.
At the time of writing, GBP/EUR is trading at €1.1256, up 1% from a low of around €1.1133 at the opening of this week’s trade.
Crucial GDP Data in Focus for the Pound (GBP)
The Pound (GBP) firmed this morning, buoyed by hopes that the UK economy may narrowly avoid contracting this year. In its latest economic outlook report, the National Institute for Economic and Social Research (NIESR) said that the UK is ‘likely to avoid’ slipping into a technical recession.
This slightly more upbeat outlook may underpin the Pound through today’s session. However, gains could be limited: the report stresses that even if the UK avoids a technical recession, it will ‘certainly feel like a recession’ for many British households.
Looking further ahead, GBP may be muted on Thursday as traders await the important GDP data on Friday. Economists expect the UK economy to have stagnated in the fourth quarter of 2022, following a 0.3% contraction in December.
If the UK managed to avoid a recession last year, Sterling may enjoy more support. However, if the GDP data misses forecasts then GBP exchange rates may slump.
Euro (EUR) to Weaken amid Russia-Ukraine Worries?
Meanwhile, the Euro (EUR) is muted today, posting minor losses against its stronger peers. The vulnerability comes amid a lull in economic data, while a risk-on market mood applies modest pressure to the safer single currency.
Amid the lack of data, EUR investors may take their cues from Russia-Ukraine news. With analysts expecting a new ground offensive in the coming weeks, any worries about an escalation could hurt the Euro.
The common currency could also trade according to its negative correlation with the US Dollar (USD). Two Federal Reserve policymakers are due to speak today. If hawkish comments boost USD, then EUR could stumble.
On Thursday, Germany’s delayed preliminary inflation rate for January is due out. As the Eurozone’s inflation rate has already been published, movement may be limited, but an uptick in German inflation could boost European Central Bank (ECB) interest rate rise bets and thereby support EUR.
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