Pound (GBP) Strong After UK GDP Meets Forecasts
Despite UK growth slowing marginally, Pound Sterling has been strengthened by the GDP figures after investors breathed a sigh of relief. Growth had been expected to drop from 2.1% to 1.9%, although many had been anticipating a worse result.
European Stocks Still in the Red, Oil Sliding Towards $30 Per Barrel
European stocks have remained in the red after opening lower this morning. The French CAC 40 is down -0.3%, the FTSE 100 -0.6% and the German Dax -0.7%. Both WTI and Brent crude are sliding towards $30 per barrel, currently at $30.40 and $31.15 respectively. Oil could fall even further after news that US stockpiles increased by 8.4 million barrels this month, more than double the original forecast. This could see crude prices drop below $30 again as the market adjusts to the probable lack of demand over the next few weeks.
Another day of poor trading in China has triggered a domino effect of stock sell offs, forcing the European markets lower as well. The Euro is strong overall today, buoyed by positive results from the German Consumer Confidence survey. Meanwhile, Pound Sterling has been softened by data which shows household savings have hit a 50-year low.
Euro to Pound Sterling (EUR/GBP) Exchange Rate: German Consumer Confidence Remains Stable
Consumer attitudes in Germany changed little during January, with rises in outlook on certain areas of economic performance negated by dropping confidence in others. The overall index remained at 9.4, despite a forecast drop to 9.2. The indicator of economic expectations rose 1.3 points last month, up to 4.2 points after six months of continuous decline. The long term average for consumer outlook on the German economy is 0, although year-on-year (YoY) this month’s positive figure is down 18 points.
Consumers also reported an increasing willingness to buy, with a 3.7 point growth bringing the index to 52.7, a six-month high. The low interest rate environment is giving consumers little incentive to save, while falling energy prices are freeing up money to be spent elsewhere. Income expectations did experience a slight fall, with the index falling -3.6, although year-on-year this represents only a -0.6 decline.
In other positive Euro news, Italy has reached an agreement with the EU which will help the country’s banks to sell of large portfolios of underperforming or non-performing loans to private investors. Doing so will reduce weakness in the Italian banking sector and ease pressure on financial markets.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading in the region of 0.7608.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Slides as Concerns Raised Over Lack of Consumer Savings
UK consumer spending is being driven by the plummeting price of oil, according to Bloomberg Business. Low wage growth is leaving little spare to put into savings, meaning that consumption could be squeezed if prices rebound. Real income fell by up to 10% between 2008 and 2014, with consumers turning to savings in order to fuel consumption. This, combined with low interest rates providing little reason to save money, has seen the household saving ratio – which measures the balance of spending compared to income – has fallen to its lowest level in more than 50 years.
The Office for National Statistics (ONS) said recently that ‘Although the annual change in the quantity bought was strong (4.5%) between 2014 and 2015, the amount spent increased by only 1.1%. This could be explained by falling prices in stores, which decreased by 3.2%. Essentially, as a consequence of falling prices, consumers were buying more items which were costing less.’
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.3123 and 1.3220.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: UK GDP and German CPI Tomorrow
Italian property prices and French unemployment data is all that remains for either the UK or the Eurozone today. Tomorrow will be a key day, with UK GDP for 2015 released, followed by German CPI figures for January.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending between 0.7562 and 0.7614.