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Euro Holds Gains Versus Pound (EUR GBP); Eurozone GDP Stronger than Forecast

  • UPDATE: Eurozone GDP resilient – Output declines by less than expected
  • Strong data boosts Euro – German and Spanish unemployment fall
  • German inflation above forecast – Building inflationary pressures in powerhouse economy?
  • Pound sinks as Lloyds announces job cuts – Banking group expecting interest rate cut
  • Forecast – Eurozone GDP could weaken EUR GBP exchange rates

EUR GBP advanced after Lloyds Banking Group announced it would cut thousands of jobs in anticipation of lower UK interest rates. Comments from BoE official David Blanchflower regarding the possibility of the Bank of England (BoE) introducing negative interest rates also weighed on the British currency, with Pound Sterling (GBP) exchange rates generally weakening across the board.

Slower-than-Forecast Eurozone GDP decline Helps Euro Hold Gains

The Euro has remained strong against the Pound today thanks to better-than-expected GDP figures. Seasonally-adjusted growth in the Eurozone slowed from 1.7% to 1.6% in the second-quarter, rather than falling an additional ten basis points as predicted. Consumer price index data for the Eurozone was positive as well, with core price growth holding steady at 0.9% instead of weakening and non-core growth accelerating unexpectedly from 0.1% to 0.2% in July.

(Last updated 12.45, 29/07/16)

Strong German Labour Market and Eurozone Inflation Boost Euro

The Euro was able to advance yesterday after positive data buoyed investor appetite for the single unit. German unemployment fell by -7k, a bigger drop than both last month’s -6k decline and the forecast -4k. The unemployment rate remained the same on a seasonally-adjusted basis. On top of this, the Spanish unemployment rate dropped to a six-year low; this was a bittersweet victory, however, as the latest figure still shows a fifth of the country’s eligible population remains without employment.

Other low impact data helped boost the Euro, including an unexpected rise in Eurozone economic confidence, services confidence and the Business Climate Indicator. Industrial confidence remained negative, but recovered from -2.8 to -2.4 instead of weakening to -3.3 as predicted.

Inflation results for Germany were also positive. The preliminary figures for July showed inflation had risen to 0.3% on the month and 0.4% on the year; in both cases better-than-forecast.

3,000 Jobs to Go at Lloyds as 200 Branches Close; Pound Weakens on BoE Rate Cut Bets

Falling UK interest rates are likely to make it harder for Lloyds to capitalise itself, its CEO has claimed. Markets are widely expecting an interest rate cut below the current 0.5% level in the upcoming Monetary Policy Committee (MPC) policy meeting. This, combined with post-Brexit uncertainty, has seen Lloyds announcing new cost-cutting measures expected to save the bank £400 million. Among the measures are plans to close an additional 200 branches on top of the 200 closures already announced, while 3,000 jobs will be axed.

While a Bank of England (BoE) interest rate cut is the result of the Brexit referendum, Lloyds stressed that the decision to make these savings had been taken before the outcome of June’s referendum; a 15% fall in customer branch usage was one of the motivating factors.

Also weighing on the Pound was an announcement from Countrywide that profits would fall thanks to the Brexit impact upon the housing market, plans by a French advertising firm to scale back investment in the UK and figures showing a fall in the YouGov/CEBR monthly consumer confidence survey.

Euro Pound (EUR GBP) Exchange Rate Forecast; Eurozone GDP Poses Downside Risks

It’s a busy data day for the Eurozone, starting with French GDP, which is forecast to weaken on the quarter and strengthen on an annualised basis, and German retail sales, which are predicted to soften considerably. The Eurozone unemployment rate and consumer price index will also be released today, alongside the headline Eurozone GDP figures for the second quarter. GDP is expected to weaken from 1.7% 1.5% on a seasonally-adjusted basis, which could threaten the Euro.

The key UK data today has already been released. The GfK consumer confidence figure is likely to be the most important motivator of Pound movement today, although there are also net consumer credit and mortgage approvals figures on the way.

EUR, GBP Conversion Rates

The Euro Pound (EUR GBP) exchange rate was trending around 0.8438, while the Pound Euro (GBP EUR) exchange rate was trending around 1.1843 during yesterday’s European session.