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Solid Eurozone GDP Growth Struggles to Bolster Euro Pound (EUR/GBP) Exchange Rate

Euro Pound (EUR/GBP) Exchange Rate Trends Narrowly Despite Robust Eurozone GDP

Even though the fourth quarter Eurozone gross domestic product matched forecasts this was not enough to significantly boost the Euro to Pound (EUR/GBP) exchange rate this morning.

While the currency union outpaced its rivals, holding steady at growth of 2.7% on the year, the mood towards the Euro (EUR) remained somewhat muted on Wednesday.

Despite this solid showing encouraging bets that the Eurozone will maintain its bullish economic momentum in 2018 the odds of the European Central Bank (ECB) returning to a hawkish outlook remain low.

As researchers at BNP Paribas noted:

‘Despite the cyclical recovery, core inflation still shows no sign of a convincing upward trend. For the recovery to enter its inflationary phase the economy has to improve further, until the point at which wages will tend to increase.’

Confirmation of the sharp contraction in January’s German consumer price index on the month also put some downside pressure on EUR exchange rates.

Pound (GBP) Exchange Rates Soften After IMF Highlights UK Productivity Problem

Confidence in the Pound (GBP) remained generally limited, meanwhile, helping to keep the EUR/GBP exchange rate on a narrow trend.

Investors were not impressed by the tone of Foreign Secretary Boris Johnson’s latest comments on the subject of Brexit, viewing the speech as rather lacking in the substance that markets want.

GBP exchange rates saw further weakness as a result of the International Monetary Fund’s (IMF) latest assessment of the UK economy.

As the IMF warned that the UK needs to boost productivity, while maintaining that economic growth will remain relatively sluggish, this gave Sterling little cause for optimism.

With the UK looking set to remain at the bottom of the pack of the G7 in terms of 2017 growth, and doubts over the likelihood of an imminent Bank of England (BoE) interest rate hike remaining, GBP exchange rates struggled to find any traction.

Widened Trade Surplus Forecast to Benefit EUR/GBP Exchange Rate

Tomorrow’s Eurozone trade balance figure could help to boost the EUR/GBP exchange rate, providing that it maintains the impression of a robust economic outlook.

Forecasts point towards a widening of the surplus in December, something which should give the ECB some cause for confidence.

However, unless the latest German wholesale price index data highlights an increase in inflationary pressure on Friday the mood towards the single currency may remain less-than-bullish.

Even so, a weaker reading from this afternoon’s US consumer price index may help to buoy the EUR/GBP exchange rate in the short term.

Demand for the Pound, on the other hand, could pick up on the back of the UK retail sales data for January.

Signs that consumers continued to spend in spite of the ongoing squeeze on wages and household finances may galvanise greater support for the Pound.

A disappointing showing, though, would give the EUR/GBP exchange rate an additional boost ahead of the weekend.