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Euro Pound Exchange Rate Forecast: EUR/GBP Muted as Italy Falls into Recession

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EUR/GBP Exchange Rate Subdued Following Weak Eurozone GDP Figures

The Euro Pound (EUR/GBP) exchange rate is on the defensive this morning as the Eurozone’s latest GDP figures fail to inspire confidence in the bloc.

At the time of writing EUR/GBP exchange rate is drifting lower, but is still some way off relinquishing Tuesday’s gains.

Euro (EUR) Struggles as Italy Falls into Recession

The Euro (EUR) is on the back foot against the Pound (GBP) and the majority of its other currency peers this morning after Eurozone growth was confirmed to have slowed to just 1.2% in 2018.

This comes as a result of Eurozone GDP holding at 0.2% in the fourth quarter, the slowest pace of expansion in four years.

Potentially even more damaging was the news that Italy, the Eurozone’s third largest economy, actually fell into a recession at the end of 2018.

The latest growth figures as published by Italy’s national statistics agency, Istat showed that domestic growth shrank by 0.2% in the fourth quarter, following a 0.1% contraction in the three months to September.

Istat’s report read:

‘The quarter on quarter change is the result of a decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services.

‘From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component.’

This has resulted in Italy’s economy only expanding by a meagre 0.1% last year, and is likely to stoke further fears regarding its government’s budget plans for 2019.

EUR/GBP Exchange Rate Forecast: Sliding Eurozone Inflation to Pressure the Euro?

Looking ahead, the Euro Pound (EUR/GBP) exchange rate may give ground at the end of this week’s session as the Eurozone publishes its latest CPI figures, with inflation expected to have fallen as low as 1.4% in January.

This also follows the final release of the Eurozone’s January Manufacturing PMI, which is expected to confirm the bloc’s factory were dangerously close to stagnation this month

Meanwhile, barring any major developments in Brexit, movement in the Pound may be driven by the release of the UK’s own factory PMI on Friday, potentially dragging on Sterling sentiment if growth in the manufacturing sector slowed at the start of 2019 as forecast.

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