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Pound to Euro Exchange Rate Flat as UK GDP Growth Beats Forecasts

European Central Bank

The Pound to Euro (GBP/EUR) exchange rate was flat this morning as UK GDP for Q4 beat forecasts.

At the time of writing the pair is currently trading at around 1.1391.

Pound (GBP) Supported by UK GDP Data

The Pound found itself supported this morning as UK GDP data from Q4 beat forecasts and showed a 1% growth for the end of 2020m which will hopefully see the UK avoid a double-dip recession.

However, despite two consecutive quarters of growth in the second half of 2020, GDP shrank by 9.9% as a whole over the year.

Debapratim De, senior economist at Deloitte commented on the data saying:

‘While the economy registered its sharpest annual contraction on record last year, activity was 6.3% below pre-pandemic levels in December – a better outcome than many had expected.’

‘Stricter and more prolonged restrictions are likely to drive a further contraction in the first quarter before vaccinations and better weather enable a summer rebound. However, regaining lost activity due to the pandemic will take longer. We forecast UK GDP to reach pre-pandemic levels in spring 2022.’

Euro (EUR) Struggles as Germany Reinstates Border Controls

The Euro struggled this morning on the back of an extension of lockdown restrictions in the Eurozone’s largest economy, Germany, and now a reintroduction of border controls to help combat the second wave of the coronavirus pandemic.

The German government announced on Thursday evening that they were to reinstate border controls along the south-eastern part of the country after the Czech Republic and Austria recorded high numbers of mutated coronavirus cases.

The temporary border controls will start Sunday at midnight and it’s not known how long they will last for.

Furthermore, investors remain cautious over the state of Italy’s government, with the prospect of Mario Draghi becoming Italy’s new prime minister.

The results of an online vote showed that almost 60% of 5Star members backed a new coalition led by the former president of the European Central Bank (ECB).

Luigi Di Maio, former 5Star political chief, wrote on Facebook that:

‘Today, our members once again demonstrated great maturity, loyalty to institutions and a sense of belonging to the country.’

‘The 5Star Movement chooses the path of courage and participation, but above all chooses the European path.’

Pound to Euro Outlook: Eurozone Industrial Production Data to Limit Euro Gains?

The Pound to Euro exchange rate will continue to be driven by any coronavirus developments over the weekend, with a continuing successful vaccine rollout bolstering Sterling.

Pound investors will looking to the middle of next week as inflation data is expected to show a contraction of 0.5% for January 2021, which could cause losses for GBP.

For Euro investors, Monday will see the release of the Eurozone’s industrial production data for the end of 2020, industrial production is forecast to contract 0.5%, which could spell trouble for the single currency.

Furthermore, preliminary employment change data from the Eurozone for Q4 also shows a contraction, adding further pressure to EUR.

EUR will also remain sensitive to US Dollar (USD) strength which has begun to rebound, which could weaken the Euro.