Higher Third Quarter UK Growth Fails to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
The mood towards Pound Sterling (GBP) remained bearish even in the wake of an acceleration in the third quarter UK gross domestic product thanks to underwhelming monthly growth data.
Although quarterly growth picked up from 0.4% to 0.6%, the economy’s fastest level of growth since the end of 2016, this failed to give GBP exchange rates any particular encouragement.
Investors largely anticipated this improvement on the weaker second quarter thanks to the strength of July’s monthly GDP reading, fuelled by the summer heatwave and sporting events.
As a result, focus instead fell on the fact that growth unexpectedly stagnated in both August and September.
This raises the risk of a disappointing fourth quarter, with businesses continuing to rein in their spending as Brexit-based uncertainty increasingly hangs over the domestic outlook.
Ana Boata, senior economist at Euler Hermes, commented:
‘The rebound in UK economic growth in Q3 was triggered by a number of temporary factors including contingency planning in light of the uncertainty on the Brexit deal by March 2019.
‘We expect GDP growth to fall to 0.2-0.3% in Q4 as tightening financial conditions, weaker consumer confidence and more fragile business profitability take their toll on the UK economy. The drag on growth from the Brexit related uncertainty will remain and will hinder investment opportunities.’
Euro (EUR) Upside Limited as Italian Budget Dispute Rumbles On
Demand for the Euro (EUR) also proved muted on Friday as investors lacked any fresh data to distract from tensions over the ongoing Italian budget dispute.
With the European Commission forecasting growth of just 1.2% for the Italian economy in 2019 the pressure on the government has continued to build.
As European officials see the Italian government’s own growth forecast of 1.5% as too optimistic the chances of any imminent agreement appear limited.
EUR exchange rates are likely to come under increased pressure as Tuesday’s deadline for the submission of a revised budget proposal approaches.
A fresh clash between Italian and EU officials could see the single currency slump sharply, with the conflict fuelling concerns over the future integrity of the Eurozone.
Brexit Anxiety Forecast to Keep Pound Sterling (GBP) Under Pressure
Speculation over Brexit is likely to remain the primary influence on GBP exchange rates, meanwhile, as the clock continues to run down.
Unless markets see signs that the two sides are moving closer to an agreement the Pound may well remain on the back foot.
However, even if the UK and EU can reach an understanding on issues such as the Irish border the threat of a no-deal Brexit could remain.
Until Theresa May commands sufficient support to push any deal through Parliament worries over the future of the UK economy look set to persist, to the detriment of the Pound.
Tuesday’s UK labour market and earnings data could provoke additional volatility for the Pound Sterling to Euro (GBP/EUR) exchange rate, particularly if wage growth shows signs of slowing.