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Pound Sterling to Euro Exchange Rate Forecast: UK Growth Fails to Notably Influence GBP/EUR Outlook

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Pound to Euro Exchange Rate Recovers from Lows in Anticipation of UK Growth Report

Since Thursday, investors have been buying the Pound Sterling to Euro (GBP/EUR) exchange rate back up from its worst levels – but the pair’s recovery may be limited even if investors have a bullish reaction to the day’s UK growth results.

GBP/EUR opened this week at the level of 1.1238 and has since plunged. While GBP/EUR has recovered from the 9-month-low of 1.1081 seen on Thursday morning, the pair has only recovered slightly.

As the time of writing on Friday morning, GBP/EUR trended in the region of 1.1140, still well below the week’s opening levels.

Following the publication of Britain’s latest Gross Domestic Product (GDP) growth results on Friday, which generally met expectations but fell short in the monthly print, the Pound’s (GBP) movement and outlook were largely unchanged.

UK growth came in at 0.4% quarter-on-quarter and 1.3% year-on-year as expected. June’s monthly GDP figure slowed to 0.1% rather than the forecast 0.2%.

Meanwhile, demand for the Euro (EUR) remained relatively limp following the past week’s mixed Eurozone ecostats and a sturdy US Dollar (USD).

Pound (GBP) Exchange Rate Outlook Limited by ‘No Deal’ Brexit Fears

Regardless of UK data, the Pound’s appeal is limited to investors due to persistent uncertainties about how the Brexit process will unfold.

With the UK set to formally begin leaving the EU in March 2019 but a Brexit deal between the nations still nowhere to be seen, investors are becoming highly anxious that a ‘no deal’ Brexit could become reality.

In the last week, ‘no deal’ Brexit fears were exacerbated by comments from influential officials, including Bank of England (BoE) Governor Mark Carney and UK Trade Secretary Liam Fox.

Independently, both noted that the chances of a ‘no deal’ Brexit appeared to have risen. The Bank of England has indicated that if the Brexit process goes worse than expected, it could cut UK interest rates rather than hike them again.

Investors are anxious about the possibility that Britain could leave the EU without any kind of deal that Sterling strength has been limited even amid decent data, due to signs that Brexit uncertainties are hitting UK consumer and business confidence.

This has left Sterling generally unappealing and has limited its potential for gains.

Euro (EUR) Exchange Rates Pressured by Turkey Concerns

The Pound recovered a little easier against the Euro on Friday, as the shared currency was sold in reaction to the latest comments from the European Central Bank (ECB).

The ECB indicated it was concerned that the recent weakness of the Turkish Lira (TRY) could impact Eurozone banks.

This caused some mild panic in forex markets, as investors became concerned that the Eurozone’s growth could be thrown off track by its relationship with Turkey.

However, according to Carsten Hesse from Berenberg bank the impact on Eurozone banks is likely to be limited:

‘Of course, a full blown Turkish banking crisis would have some negative repercussions on Eurozone banks that have large credit exposure to Turkey or own Turkish banks. But overall, the Eurozone banking exposure seems too small to cause a significant crisis,’

As a result, the Euro’s losses were limited and GBP/EUR was unable to significantly recover ???

Pound to Euro (GBP/EUR) Forecast: Major Inflation Ecostats in Focus

The Euro’s movement has been generally low-influence in the past week, due to a lack of fresh notable or shocking Eurozone ecostats. Instead the Pound to Euro (GBP/EUR) exchange rate was driven largely by Brexit jitters hitting Sterling.

The Euro is more likely to take point in GBP/EUR next week however, as slews of key Eurozone data will be published throughout the week.

Tuesday will see the publication of Germany’s Q2 Gross Domestic Product (GDP) projections and final July Consumer Price Inflation (CPI) results.

France’s July inflation stats and the Eurozone’s Q2 growth projections will be published too.

Also worthy of note on Tuesday will be Britain’s latest job market results, and ZEW’s Eurozone economic sentiment survey figures.

Wednesday will follow with key UK inflation stats from July, UK retail sales data will come in on Thursday, then the Eurozone’s key July inflation rate report will be published on Friday.

Of course, any major developments regarding the Brexit process are likely to influence the Pound to Euro (GBP/EUR) exchange rate too, leaving the coming week potentially highly influential for the outlook.