Pound to Euro Exchange Rate Tumbles on Estimates of Slowing UK Growth
A slew of underwhelming UK ecostats weighed on the Pound to Euro (GBP/EUR) exchange rate on Wednesday, as investors speculated that Britain’s economic growth may have slowed significantly in Q1 2018.
Due to a lack of particularly supportive data from Britain or the Eurozone, GBP/EUR has fluctuated for most of the week so far.
GBP/EUR opened at the level of 1.1464 on Monday and briefly touched a nine-month-high of 1.1503 on Tuesday. On Wednesday though, the pair slipped and touched a low of 1.1443. It was trending nearer 1.1460 at the time of writing.
Wednesday saw the publication of the National Institute of Economic and Social Research’s (NIESR) latest estimate of UK Gross Domestic Product (GDP). The Pound (GBP) fell following the report.
The group predicts that UK growth slowed to just 0.2% in Q1 2018, from 0.4% in Q4 2017. According to Amit Kara from NIESR;
The main reason for the weakness was severe weather in March which is likely to have disrupted activity in all major sectors of the economy. There is a small offset in industrial production growth which recovered in the first quarter after the previous quarter was affected by the Fortis oil pipeline shutdown.
Pound (GBP) Exchange Rates Pressured by Underwhelming UK Data
While investors still widely expect that the Bank of England (BoE) will hike UK interest rates in its May policy decision next month, recent UK data has indicated that Britain’s economy is not performing as strongly as expected.
Most of this week’s most influential UK ecostats were published on Wednesday, and most of them were disappointing.
UK industrial production and manufacturing production fell short of forecasts in all February prints.
Month-on-month industrial production was forecast to slip to 0.4% but instead tumbled to 0.1%. Yearly industrial production failed to reach the forecast 2.9% and only hit 2.2%.
Manufacturing production was similar, with the yearly figure only rising to 2.5%. The monthly figure unexpectedly contracted at -0.2% rather than hitting the forecast 0.2%.
Britain’s February trade balance results did lighten further than expected and come in at £-0.965b, but this was not enough to offset the day’s other underwhelming UK stats.
Euro (EUR) Strength Limited as European Central Bank (ECB) Plays Down Hawkish Comments
The Euro (EUR) was unable to capitalise on Sterling’s weakness on Wednesday, as the latest Eurozone data continued to underwhelm investors and the European Central Bank (ECB) distanced itself from hawkish comments made by an official earlier in the week.
ECB governing council member Ewald Nowotny stated on Tuesday that he believed it was possible for the ECB deposit rate to be hiked in preparation for a potential interest rate hike next year.
However, an ECB spokesperson clarified that Nowotny’s views were his own and were not representative of the bank’s views. This caused the Euro to perform a little weaker on Wednesday.
Wednesday’s Eurozone data included Italian retail sales results from February. While these did beat expectations month-on-month, the yearly figure still printed a contraction of -0.6%.
Pound to Euro (GBP/EUR) Forecast: French and German Italian Figures in Focus
A lack of UK data due for publication for the rest of the week means Sterling trade is likely to react to Bank of England (BoE) speculation, as well as any potential Brexit developments in the coming days.
On Thursday, Bank of England officials including Ben Broadbent and Governor Mark Carney will hold speeches. If UK monetary policy comes up in these speeches it could influence late-week Pound movement.
However, the Pound may struggle to advance if upcoming Eurozone data impresses investors and makes the Euro more appealing.
Key inflation stats due towards the end of the week could boost European Central Bank (ECB) interest rate hike bets if they impress.
France’s final March inflation results will be published on Thursday, followed by German and Spanish inflation data on Friday.
If these inflation figures disappoint investors the Pound to Euro (GBP/EUR) exchange rate could recover some of its losses. For now though, GBP/EUR looks on track to end the week lower.