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Euro Pound (EUR GBP) Slides as UK GDP Beats Expectations

  • Euro Pound Slides to 0.8879 – Pound Euro 1.1259
  • UK GDP Beats Expectations – Market Demand for Pound Rises
  • German IFO Surveys Prove Positive – EUR GBP Fails to Capitalise

The Euro Pound exchange rate slumped today on news that the UK’s economy expanded more than anticipated in the third quarter.

UK GDP Beats Forecasts – GBP Exchange Rates Climb

The UK’s economy grew at a faster rate than expected in 2017, further building on market expectations that the Bank of England (BoE) will move for a rate hike before the year’s end.

Quarterly gross domestic product growth in the UK grew to 0.4% in Q3, up from the expectation of a 0.3% gain and indeed the previous period’s 0.3%.

The year-on-year figure remained steady at 1.5% – as forecast.

This news is likely to provide even more support for members of the Monetary Policy Committee (MPC) to push for a rate hike in November, especially with UK inflation continuing to soar above the BoE’s target levels.

Rebecca O’Keeffee, Head of Investment at Interactive Investor, shared her thoughts;

‘Today’s GDP figures will be closely scrutinised to see whether they give any excuse for policymakers to hold fire. However, the prospect of delaying could lead to accusations of the MPC crying wolf again and severely denting Sterling’.

Markets have already come to expect a rate hike in November following an increase in hawkish tone from various BoE policymakers, but with UK GDP remaining on strong form, unemployment being at a record low and inflation being so high, BoE Governor Mark Carney and the MPC will be under even greater sustained pressure to implement tighter monetary policy.

This outlook increased investor demand for Sterling, as the BoE is deemed far more likely to move for a rate hike in 2017 than the European Central Bank (ECB).

EUR Exchange Rates Bolstered by German IFO Surveys

German business confidence soared to a record high in October after falling for two consecutive months, according to the Ifo Business Climate Index.

September’s Ifo business climate print hit an all-time high of 116.7, beating expectations of 115.2 and the previous period’s upwardly revised 115.3.

The current conditions index also proved positive, increasing from 123.7 to 124.8 in September, along with the gauge for future expectations, which climbed from 107.5 to 109.1.

Ifo Chief Clemens Fuest shared his optimism on these figures, stating:

‘Companies are very optimistic about the months ahead. They also upwardly revised their very favourable assessments of the current business situation. Germany’s economy is powering ahead’.

Germany makes up almost a quarter of the Euro-Zone’s total GDP, so any indication (such as this one) that Germany’s economic strength is growing tends to spell good things for the bloc.

As a result, market demand for the Euro saw a slight increase, though not enough of an increase to stop the Pound from retaining its lead.

EUR GBP Forecast: ECB Rate Decision in the Spotlight

The outlook for EUR GBP has grown increasingly gloomy today, with the UK’s positive GDP print effectively positioning the BoE even further ahead of the ECB when it comes to the possibility of an imminent rate hike.

Markets will, nonetheless, be keeping a keen eye on tomorrow’s October rate meeting for the ECB, with the expectation not that they will move for a rate hike, but that they will shed even more light on their plans to taper back their quantitative easing scheme.

If the ECB sounds overtly dovish then markets will shift even further away from the single currency.

Even if the ECB proves confident, however, the medium-term outlook of EUR GBP will continue to remain hindered by the possibility of a haw