Thursday’s UK Data Disappoints Knocking Pound to Euro Exchange Rate Lower
Thanks to Thursday’s disappointing UK ecostats, the Pound to Euro (GBP/EUR) exchange rate shed most of its weekly gains and trended nearer the week’s opening levels on Thursday morning.
GBP/EUR had climbed from the week’s opening levels of 1.1300 to a weekly high of 1.1353 on Wednesday, but the pair was unable to hold these gains on Thursday.
Key UK ecostats including Q4 Gross Domestic Product (GDP) projections and Q4 business investment projections were published on Thursday morning, and many of the results fell short of expectations.
Britain’s Q4 growth rate was forecast to have come in at 0.5% quarter-on-quarter and have slowed to 1.5% year-on-year. However, the figures came in at just 0.4% and 1.4% respectively, indicating that British growth was slower than expected towards the end of 2017.
Analysts were generally disappointed in the data and noted that the figures would likely worsen concerns about how the Brexit process was affecting Britain’s economy. According to Dennis de Jong from UFX.com;
‘The news comes at a crucial time for Prime Minister Theresa May, who welcomes her top ministers to Chequers for Brexit talks today. With economies on the continent and the Eurozone as a whole both performing well at the moment, it’s a tough day for Brexiteers to present their argument, as Britain risks being left behind.’
Britain’s latest business investment results were also concerning. Quarter-on-quarter investment came in at 0.0%, indicating that investment was stagnant throughout the quarter.
Euro (EUR) Gains Limited as Eurozone Ecostats Fall Short of Expectations
The Euro (EUR) was unable to capitalise on the Pound’s weakness on Thursday and push GBP/EUR below the week’s opening levels, due to market disappointment in the latest Eurozone ecostats.
Most of the day’s Eurozone data fell short of expectations, including France’s business confidence survey from February which slipped past the expected 113 to just 112.
French inflation was also disappointing, with the year-on-year inflation rate expected to come in at 1.4% but only rising to 1.3%.
Ifo’s German business confidence figures from February fell short of expectations in all major prints, with the key business climate figure falling from 117.6 to 115.4 rather than the expected 117.1.
Italy’s inflation results from January were mixed, missing expectations month-on-month but beating them year-on-year.
However, while this week’s Eurozone data has largely missed forecasts the bloc’s ecostats are still generally optimistic and the Eurozone economic outlook is strong.
Pound (GBP) Exchange Rates Fluctuate on Bank of England (BoE) Uncertainty
Recent UK ecostats have kept pressure on the Pound, but officials from the Bank of England (BoE) continue to hint that UK interest rates may need to rise at a faster rate than previously expected.
This is because the bank expects inflation to remain high and UK wages to firm soon.
Wednesday afternoon saw multiple BoE policymakers hint that rates may need to rise at a faster pace than previously expected, which briefly bolstered Sterling appeal.
However, analysts are suggesting that due to a surprise rise in Britain’s unemployment rate, as well as the slower than expected domestic growth, the bank could be put off hiking UK interest rates as soon as May after all.
Pound to Euro (GBP/EUR) Forecast: Key Eurozone Inflation Stats Ahead
The Pound (GBP) could still end the week higher against the Euro if Friday’s Eurozone Consumer Price Index (CPI) results disappoint investors.
Eurozone inflation is one of the main factors driving European Central Bank (ECB) interest rate hike bets, so if the report disappoints on Friday it could cause hopes of any hawkishness from the bank in the coming months to lighten.
January’s Eurozone inflation figures are forecast to have slumped from 0.4% to -0.9% month-on-month and from 1.4% to 1.3% year-on-year. However, core inflation is expected to have improved slightly from 0.9% to 1%.
Most of this week’s inflation stats from Eurozone member nations have been mixed, so a disappointing Eurozone inflation figure could make it easier for GBP/EUR to register some late-week gains.
Sterling, on the other hand, is more likely to be influenced by Brexit developments in the coming sessions amid a lack of key upcoming UK ecostats.