Euro Pushed Lower by Pound Sterling Despite Disappointing UK Data
UK Gross Domestic Product has slowed unexpectedly in the third quarter, falling from 0.5% to 0.4% quarter-on-quarter (QoQ) and to 2.1% from 2.3% year-on-year (YoY). The Index of Services has also slowed, as has Total Business Investment, while the Lloyds Business Barometer has fallen from 55 to 45.
However, Pound Sterling continues its strong advances, with the EUR/GBP exchange rate losses extending to -0.6%.
After two days of bullish rises, during which the Euro hit a ten-week high, the EUR/GBP exchange rate is sliding as Pound Sterling extends a lead of 0.4% against the common currency. The Euro has been harmed by worse-than-expected French GDP, with UK figures due out later in today’s London session.
EUR/GBP Exchange Rate Trending Down as French GDP Disappoints
French Gross Domestic Product has slowed in the third quarter as France struggles with underperforming retail and services sectors, with manufacturing failing to post any growth. Quarter-on-quarter (QoQ) GDP remained at 0.3% but year-on-year (YoY) growth slowed from 1.2% to 1.1%, with the tragic Paris attacks being partly blamed for the slowdown. Although the true impact of November’s terrorist attacks won’t be known until the fourth quarter figures are released, many businesses have already reported a loss in confidence following the events. Research company Markit predicts that the French economy will grow by the same pace in the final quarter of the financial year.
The common currency may also be experiencing weakness as a result of the Spanish elections, which saw the ruling conservative party win the most seats but lose its majority, with four million voters deserting the party. The rise of anti-austerity party Podemos, which is Spain’s second-largest party in terms of membership, has signalled that 2016 could be a difficult year as another country turns against the Eurozone austerity measures, with Germany experiencing the brunt of discord. Anti-austerity parties already rule in Greece and Italy, with Portugal’s right-wing alliance having been replaced by a coalition lead by the anti-austerity Socialist Party earlier this year. In Austria, the Freedom Party of Austria has taken the #1 spot in domestic opinion polls.
The EUR/GBP exchange rate is currently trending around 0.7359.
GBP/EUR Exchange Rate Bullish as Pound Sterling Rebounds from Yesterday’s Lows
Pound Sterling slumped yesterday, its losses exacerbated by news that UK public borrowing has increased by more than forecast. Public Finances figures were -£3.8 billion in October, meaning the government ran a surplus, but November’s Public Sector Net Cash Requirement increased to £5.4 billion. Public Sector Net Borrowing increased from £6.7 billion to £13.6 billion last month, significantly higher than the £11.1 billion forecast. The future of UK finances was a concern amongst investors following the news that Chancellor George Osborne has nearly reached his borrowing target of £69.5 billion for the entire financial year, with a whole quarter left to go.
The GBP/EUR exchange rate is currently trading between 1.3526 and 1.3602.
EUR/GBP Exchange Rate Forecast: Only UK Growth Data Left to Provide Movement Before Christmas
There is no Eurozone data due out until after Christmas, meaning that today’s UK GDP figures and other accompanying releases will be the only new data affecting the EUR/GBP exchange rate. If GDP holds at current levels then less important data, such as the Current Account balance or Total Business Investment, could have a disproportionate effect on exchange rates.
The EUR/GBP exchange rate is currently trending between 0.7350 and 0.7388.