The Euro to Pound Sterling (EUR/GBP) exchange rate firmed on Tuesday as data showed that the pace of UK GDP growth slumped to its slowest pace in three years in the first quarter of 2015.
The Euro to Pound Sterling (EUR/GBP) Exchange Rate Touched A Session High of 0.7170
According to the London based Office for National Statistics (ONS), on a quarter-on-quarter basis Britain’s GDP rose by just 0.3% in the first quarter of 2015. Economists had been expecting a growth rate of 0.5%. On a year-on-year basis, the UK economy was shown to have expanded by 2.4%. The figure was down from the 3% rate recorded in the last quarter, and was below the 2.6% forecast.
The weak report will be a blow to the Conservatives, as with just one week to go until the general election the party has campaigned heavily on the UK’s economic success until its rule. The Liberal Democrats too, will feel the heat, as they were the junior partner in the coalition government, which has overseen the turnaround in the nation’s fortunes.
The strength of the Pound against the Euro was highlighted as one of the causes for the slowdown in economic growth as it deters European importers from buying British goods.
‘Looking ahead, the economy should pick up momentum in the second half of the year as further signs of stabilisation emerge in the housing sector and real income growth continue gathering pace. The strength of the Pound, however, particularly against the Euro, will remain a drag on growth this year. With inflationary pressures subdued for a bit longer, the BoE is still unlikely to deliver its first hike this year,’ said Anna Stupnytska, an economist from Fidelity.
The Pound Sterling to Euro (GBP/EUR) Exchange Rate Fell To a Session Low of 1.3945
The Euro meanwhile received some support from rising optimism that a deal will be reached between Greece and its creditors in the Eurozone. The decision by Greek Prime Minister Alexis Tsipras to alter the line-up of the country’s negotiation team was seen as a positive step.
‘Europe has led the way this week and this is still on the back of optimism around Greece. There are some interesting developments in Greece now with the country reshuffling its bailout negotiating team and forcing Finance Minister Varoufakis to the sidelines. Mr Varoufakis was seen by some as being part of the problem and as a result news of him being sidelined has been well received, ’said Stan Sham from IG.
49% Chance of Eurozone Breakup
Despite the rise in optimism, a survey published by German research group Sentix showed that 49% of investors expect the Eurozone to break up over the course of the next 12 months. Sentix’s break-up index jumped from 36.8% to 49.0% this month.
‘European politicians’ promises to pursue the scenario of Greece keeping the Euro are not taken at face value by about the half of all investors. In 2012, Mario Draghi calmed down investors with his ultimate commitment to the Euro. But is his pledge still valid for Greece today?’ said Sentix.
The Euro could make further gains on Wednesday if the latest Sentiment data for the currency bloc come in positively.