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Pound Euro Exchange Rate Forecast: UK GDP to Undermine Sterling?

Pound Coin on Euro Banknote GBP/EUR

GBP/EUR Exchange Rate Fluctuates amid Data Lull

The Pound Euro (GBP/EUR) exchange rate was volatile today as a lack of data left the currencies vulnerable to their respective economic outlooks.

At the time of writing the GBP/EUR exchange rate is trading at around €1.146, virtually unchanged from this morning’s opening rate.

Pound (GBP) Wavers Ahead of GDP Data

The Pound (GBP) has been mixed today, as a lack of fresh UK data left the Pound vulnerable to external factors.

UK data has been notably thin on the ground this week, while Bank of England (BoE) commentary drives GBP movement. An increasingly hawkish rhetoric has been adopted in recent days by BoE policymakers.

Senior officials, including BoE Governor Andrew Bailey and Chief Economist Huw Pill, have asserted a ‘higher for longer’ narrative regarding interest rates, lending the Pound some support.

However, GBP’s upside potential was limited today, as a tepid market mood prevented the increasingly risk-sensitive currency from edging higher against its safer peers.

Also functioning to undermine the Pound’s movements are ongoing concerns about the health of the UK economy. Despite assertions of restrictive monetary policy from BoE officials, investors remain wary of the UK’s economic outlook. Looking forwards, the main catalyst of Sterling volatility, and a key indicator of the UK’s economic trajectory, will be Friday’s GDP reports.

A forecast decline of 0.1% in the third quarter may reinforce UK recession anxieties causing the Pound to plummet. A decline from the second quarters reading of 0.2% is likely to prompt heavy selling pressure for GBP, with signs of contraction in the UK economy drawing investors towards Sterling’s stronger peers. Should the data print in line with forecast, GBP may end the week on a sour note, with investors reluctant to place any hasty bets in the meantime.

Euro (EUR) Zig Zags amid Economic Slowdown Fears

The Euro (EUR) has seen a choppy week of trade, as an increasingly bleak economic forecast stifles the common currency.

A series of bleak data readings have capped the Euro’s upside potential in recent days. Reported contractions in industrial, retail and service sectors have worked to cast a sombre shadow over the Eurozone’s economic outlook.

Following the European Central Bank’s (ECB) recent hold on interest rates, further signs of economic slowing may pare rate hike bets this week. Given the Eurozone’s data driven approach to tackling inflation, continually disappointing economic observations could magnify waning investor interest.

As the week draws to a close, investors will look to commentary from ECB President, Christine Lagarde. Should Lagarde echo the increasingly dovish rhetoric surrounding ECB monetary policy, EUR could face heavy selling pressure. However, if Lagarde adopts an unexpectedly hawkish stance during her speech, the Euro may garner investor interest.

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